FILE COPy Report No. 1530-TH Thailand: Appraisal of the Minburi (Lat Krabang) Industrial Estate Proiect September 16, 1977 Industrial Projects Department FOR OFFICIAL USE ONLY Document of the World Bank This doc ument has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise he disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$1 = Bht 20.0 Bht I - US$0.05 Bht 1 million = US$50,000 WEIGHTS AND MEASURES I rai = 1,600 sq. m. it = 0.16 ha - = 17,204 sq. ft. " = 0.395 acres 1 ha = 6.2 rai 1 acre = 2.5 rai ABBREVIATIONS BOI - Board of Investment EPZ - Export Processing Zone IEAT - Industrial Estate Authority of Thailand MEA - Metropolitan Electricity Authority NESDB - National Economic and Social Development Board NHA - National Housing Authority TOT Telephone Organization of Thailand Fiscal Year (Thailand) - October 1 to September 30 FOR OMCAL US ONLY THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ... ..... .. ............ ......... . 1-ii I* INTRODUCTION I....................................... .. 1 II. THE THAI SETTING ...................................... 1 A* General I......................................... 1 B. The Industrial Sector - Structure, Performance and Growth Prospects .2........................ . 2 C. Government Policy and Investment Incentives ...... 3 D. Foreign Investment .... ....... ............. .. * 4 E. Programs for Regional Development and Industrial Estates ........ ............................... 4 ,III. MARKET ..*................................. .............. 5 A. Comparative Advantages of the Greater Bangkok Area 5 B. Demand for Industrial Land -- Greater Bangkok Area ..9.9eeees................................. 6 C. Availability of Industrial Land - Greater Bangkok Area ............... 0............... ...................... 6 D. Prospects for the Lat Krabang Industrial Estate .. 7 E. Industries Expected on the Lat Krabang Industrial Estate * ...e..*.............................. 8 IV. INDUSTRIAL ESTATE AUTHORITY OF THAILAND (IEAT) ........ 8 V. THE PROJECT ........................................... 10 A. Project Scope .. .................................. 10 B. Detailed Features ...... ......................... 11 1. Site Location, Characteristics and Acquisition 11 2. Site Development ................................... ..0... 11 3. Building Construction ........... o ............. 13 4. Export Processing Zone (EPZ) ...... 13 5. Engineering/Architectural Services and Technical Assistance ..... o...... ............. 14 6. Project Management ............................ 14 7. Land Use Pattern ...* ........... 15 C. Project Execution Schedule ........................ 15 This report was prepared by C. Goderez, E. Siou and J. Kuroda of the Industrial Projects Department. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. -.2 - Page No. VI. COST ESTIMATES AND FINANCIAL ARRANGEMENTS .... ......... 16 A. Project Cost * ** ** ** *** **........................................ . 16 B. Financing Plan ................................... 17 C. Procurement, Use of Bank Loan and Rate of Disbursement .*...*. ... . .................... a * ..... 17 VII. FINANCIAL ANALYSIS ............... ..................... 18 A* Revenue ......................................... 18 B. Income and Cash Flow Forecasts ................... 22 C. Balance Sheets and Audit ......... a.........a.... 23 D. Financial Return ....... ...... e.. o.. ....o...... ... 23 E. Risk Analysis ....... ...... ....... . . . . ......... . 24 VIII. ECONOMIC AND SOCIAL BENEFITS ................... o....... 24 A. Economic Rate of Return .....oo.oo..* ......... 24 B. Acceleration of Industrial Investment 24 C. Incremental Investment, Output and Employment .. 25 D. Internal and External Economies ................. 25 E. Social Benefits ... o.. ....... 25 F. Development of Indigenous Entrepreneurship ...... 26 IX. AGREEMENTS ..o..o....o ...... .. .. .... . ..... ....26 ANNEXES 1. Employment Estimates - 1976 2. Principal Merchandise Exports 3. Trade Indices and Terms of Trade 4. Number of Registered Factories by Industry Group and Location - 1975 5. Gross Domestic Product Originating from Manufacturing at Current Market Price, 1971-1976 6. Registered Manufacturing Firms by Location - 1975 7. Exports by Industrial Categories, 1965-1975 8. Production and Capacity of Selected Manufacturing Industries 9. Statistics of Promoted Investment, 1960-1976 10. Investment Policies and Incentives 11. Registered Capital of Promoted Industries by Nationality and Type of Ownership - 1960-1976 12. List of Business Activities annexed to the Alien Business Act 13. Regional Development Plans 14. Development Plan for the Greater Bangkok Area -3- ANNEXES (Continued) 15. National Industrial Estates Program 16. Projected Growth of Industry and Land Requirements - 1972-1981 17. Industrial Land Availability - Greater Bangkok Area 18. Price Comparison with Nava Nakorn Industrial Estate Project 19. National Executive Council Announcement No. 339, December 13, 1972 20. Industrial Estate Authority of Thailand - Organization, Management and Operations 21. Bang Chan Estate 22. Project Description 23. Project Execution Schedule 24. Project Cost Estimate 25. Projected Average Quarterly Disbursements of IBRD Loan 26. Revenue Projections 27. Operating Cost Estimate - 1983 28. Income Projections 29. Cash Flow Projections 30. Pro Forma Balance Sheets 31. Financial Rate of Return 32. Economic Rate of Return MAP3 IBRD - 11324R Thailand - Industrial Estate Program IBRD - 17963 Lat Krabang Industrial Estate and Export Processing Zone THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT SUMMARY AND CONCLUSIONS i. This report analyzes a project to establish an industrial estate at Lat Krabang, 35 kms east of Bangkok, on 1,007 rai (162 ha) of former rice paddy land at an estimated cost of Bht 198 million (US$9.9 million). When completed in 1980, the project will provide fully serviced industrial sites for some 120 medium-scale factories employing up to 12,000 workers and stan- dard factory buildings suitable for subdividing and rental to between 20 and 30 small and medium-scale industries. ii. Industry in Thailand has grown rapidly in the 1960s and '70s, acting as the leading economic sector during most of that period. An equal or better performance is needed in the future to complement the labor absorp- tive capacity of the agricultural sector which is approaching saturation. Thailand has a large and varied natural resource base. Its products are competitive on the international market and export earnings have increased more rapidly than import costs, despite Thailand's dependence on imported oil for the major share of its energy requirements. Since 1972, manufacturing investment has shifted emphasis from import substitution to export and this trend is expected to continue. Although manufacturing growth and investment during the 1977-1980 period may decline from the peak rates experienced in 1973/74, it is expected to be comparable to the sustained high levels of the 1960s. Therein lies one of the basic justifications for the project at this time. Industrial estates are needed to respond effectively and economically to the anticipated demand for factory sites and services; at the same time, by facilitating a more rapid and less costly factory planning and construction cycle, industrial investment is further stimulated. iii. The majority of new factories will continue to gravitate to the greater Bangkok area as in the past and the project analyzed in this report, as well as others to be initiated over the near-term, is designed to attract industry away from the congested center of Bangkok to outlying sites zoned and prepared for industrial use. In a later phase of the long-term national industrial estate development plan, sites and services for industry will be established in the Northern, Northeastern and Southern regions of Thailand to help disperse industry more evenly throughout the nation. iv. Thailand's first industrial estate was established in the late 1960s at Bang Chan, under the management of the Department of Industrial Works, Ministry of Industry. Based in part on the Bank's recommendations as well as on the experience accumulating at this first estate, the creation of an autonomous business-oriented Government agency to develop and manage a planned national program became the first goal in the early 1970's. In October 1973, the Industrial Estate Authority of Thailand (IEAT) inaugurated - ii - operations under a decree of the National Executive Council. After prelimi- nary studies, Minburi was selected as the highest priority location for Thailend's second Government-sponsored industrial estate and, with UNIDO technical assistance, a feasibility study was completed in August 1974 and appraised by the Bank in late 1974. However, IEAT experienced difficulties in acqulring the proposed site and another plot, located at Lat Krabang, some 15 km south of Minburi was acquired in late 1976. This reappraisal confirms the essential soundness of the project at the new location. V. -ihe project consists of the acquis'ilion of land and its development imnr sutStable industrial sites by the construction of dikes to control flood- ing, and the provision of power, water, telephones, sewage treatment and other facilities. About 12% of the area will be allocated to an Export Processing Zone (EMZ to test the demand for such facilities by national and interna- tional firms producing entirely or primarily for the export market. Stan- dard factory buildings will be constructed for sub-division and rental to SDall- and medium-scale industries. Technical assistance will be provided to strengthen IEAT's management, planning and project execution capabilities not only for this project but also for the long-range national program of industrial estate and EPZ development. vi. Financing required for the project amounts to US$9.9 million equiv- alent (Bht 198 million) and consists of: (i) equity of Bht 103 million (US$5.2 million) to be provided partly by a national treasury commitment of izh 77.,4 million (US$3.9 million) and partly through internal cash generation 0, Mt 25.7 million (US$1.3 million) from the sale of estate land; and (ii) lon$-term debt of US$4.75 million equivalent from the Bank. The Bank loan, corr esio:nding to 48% of total project investment, would be made directly to !EAT for 20 years including 5 years grace at 7.9% interest and would finance lanzd development, standard factory buildings and technical assistance. Direct and indirect foreign exchange (FE) costs are estimated at approximately 46% o3f project cost, or US$4.6 million, so that the Bank loan would cover 100% of the FE component plus $150.000 equivalent of LC costs. viio Based on the planned construction schedule, the estimated prices £sr lend sales and factory rentals and the forecasted rates of occupancy, the ff.nancial return in real terms over 25 years is 11.5% and the economic rate of return 14%. Land sale prices and factory rentals will be based on the two principles: (i) maintaining competitiveness with off-estate alternatives; and '-i) insuring a minimum 10% financial return in real terms on the estate investment. Prices will be reviewed annually and revised, if considered necessary, in consultation with the Bank. Among the benefits to be generated 'y the project by the early 1980s, are the estimated 12,000 permanent factory jobs plus 1,500 temporary construction jobs (between 1977 and 1980), investment oS about US$150 million in productive facilities generating gross output of some US$200 million and added value of US$60 million per annum, all in current terms. The Export Processing Zone will contribute to increased export earnings but there is no way of quantifying this factor in advance, even as a rough estimate. In order to further stimulate employment creation, IEAT will, wherever feasible, give priority for estate occupancy to firms whose operations - iii - are labor-intensive. The project will contribute to the dispersion of industry away from the congestion of Bangkok's core and, as Government's first organized attempt to control industrial pollution by providing adequate common waste treatment facilities, will serve as a model for all future projects in this respect. Finally, the growing concentration of industrial activity at Lat Krabang/Bang Chan justifies a major workers' housing project in the area and the eventual creation of a planned satellite new-town complete with all social infrastructure needed to enhance the quality of life for an estimated local population of up to 100,000. viii. On the basis of the agreements reached and summarized in this report, the project is suitable for a Bank loan of US$4.75 million on the terms indicated in para. vi. I. INTRODUCTION 1.01 Thailand's first industrial estate was established in the late 1960's at Bang Chan, 30 kms east of Bangkok, under the management of the Department of industrial Works, Ministry of Industry. It was the first project cf a long range program to construct industrial estates and export processing zones designed to provide needed sites and services for industry a-way from the congested center of Bangkok in a first phase and additional facilities at more distant regional locations in a second phase. 1.02 Since 1970, the Bank has been cooperating with the Thai Government in analyzing policy and institutional instruments needed in support of effi- cient industrial estate development. Based in part on the Bank's recommenda- tions as well as on the experience gained at Bang Chan, the creation of an autonomous business-oriented Government agency to manage the planned national program became the first goal and in October 1973 the Industrial Estate Authority of Thailand (IEAT) was set up under powers granted by Decree No. 339 of the National Executive Council. Shortly thereafter, in consultation with the Bank, it was concluded that construction of a second estate at Minburi, some 5 kms east of Bang Chan, was one of the higher priorities of the several alternative estate projects under consideration. With UNDP/UNIDO technical assistance, IEAT completed a feasibility study of the estate project in August 1974 and a Bank mission led by Mr. C. Goderez of the Industrit.l Pro- jects Department appraised the project in late 1974. However IEAT was not able to acquire the proposed site and another plot, located at Lat Krabang some 15 km south of Minburi, was acquired in 1976. The project was reap- praised in November 1976 by a mission consisting of Messrs. E. Siou and J. Kuroda also of the Industrial Projects Department. II. THE THAI SETTING A. General 2.01 With a total land area of 514,000 sq. kms. and a population of over 40 million, Thailand is the largest, and economically one of the most important, countries in the Indochina peninsula. Industry is the second largest segment of the economy after agriculture with a 26% contribution to GDP, employing about 6% of the estimated total labor force and accounting for a 22% share of total merchandise exports in 1975 (Annex 1). 2.02 Thailand had been less vulnerable than many other developing coun- tries to world economic fluctuations in the 1960's. Earnings from its principal export commodities -- rice, rubber, maize, tin, tapioka, kenaf, teak and tobacco -- have been stable and substantial (Annex 2). Between 1972 and 1975, however, the country's terms of trade deteriorated, as shown in Annex 3, mainly due to the oil price hike in 1973/74 and some decline in export prices in 1975. Given this situation, the Government recognizes the need to stimulate the expansion and diversification of exports. 2- 2.03 With a population growth rate of 3.1%, which ranks among the highest in the world, the annital Increment to the labor force is expected to grow from some 450,000 at present to around 650,000 by 1985. As the availability of virgin land suitable for cultivation will progressively be exhausted during the remainder of this decade, agriculture will have difficulty in absorbing as many new workers as it has done previously, and new employment opportunities will have to be ereated increasingly in the non-agricultural sectors. 3. The Industrial Sa,ctor - Structure, Performance and Growth Prospects 2.04 In its current stage of development, Thailand's industrial produc- tion is characterized by a heavy bias in favor of consumer goods such as food processing, textiles5 tobacco and footwear. According to Ministry of Industry statistics for 1975, of some 45,000 registered manufacturing enterprises, about 32,000 (73%) produced consumer goods, about 6,700 (15%) produced capital goods, and about 5,30) (12%) intermediate goods (Annex 4). Manufacturing industry as a whole aichieved an annual growth of 12.4% in the decade 1960-69 and 18.2% in the years 1970-76 at current market prices (Annex 5). 2.05 Because of market concentration, proximity to the Government adminis- trative center, superior infrastructure, easy access to imports and inter- industry linkages, most industries, especially the larger modern plants, have located in and around Bangkok (Annex 6). The Central Region (including Bangkok) generates approximately 80% of total value-added in manufacturing and absorbs some 60% of the manufacturing work force. 2.06 Incremental value added in manufacturing averaged 11% per year in real terms through the 1960s, and although the rate of increase slowed to about 7% in the early seventies, it still exceeded that of the economy as a whole. As shown in Annex 5, this growth was largely due to the expansion of: (i) intermediate goods industries such as paper, leather and rubber products, chemicals and refined petroleum products, and the processing of nonmetallic minerals; (ii) new dtrable consumer goods industries, including the assembly of radio and television sets, motor vehicles, and electrical appliances; (iii) the textile and beverage industries; and (iv) capital goods industries, including basic metal and metal products. 2.07 Since 1973, a shift in emphasis from import substitution towards export oriented manufacture has indeed become noticeable. For some industries e.g., cement, textiles, garments, furniture, plywood and metal products, this trend has been accelerated because they have gained both markets and interna- tional competitiveness through increases in world demand and international prices while domestic prices have remained relatively stable. Although world economic dislocationE in 1974 and 1975 reduced the export demand for some of these products, manufacturing exports as a whole continued to increase. The value of manufactured exports was US$39 million in 1970, US$280 million in 1973 and US$494 million in 1975; and their shares in the total merchandise exports of the country was 5.2%, 17.2% and 20.3% respectively (Annex 7). -3- 2.08 In the early seventies, capacity utilization improved steadily (Annex 8), and this in turn stimulated capital investment in new facilities. One indicator of the investment trend is the number of promotion certificates granted by the Board of Investment (BOI) to industrial projects 1/, summarized below from Annex 9: Promoted Industrial Investment 1971-1976 Applications Prom. Cert. Issued Indicated Investment (No.'s) (No.'s) (Bht Million) 1971 103 59 1,496 1972 180 70 4,005 1973 552 115 7,773 1974 228 251 18,021 1975 111 86 4,633 1976 (9 months) 88 47 1,384 The sharp increase in applications in 1973 reflected the remarkable indus- trial buoyancy of the early 1970s, and the number of promotion certificates issued in 1974 resulted from this peak. However, the number of applications and the number of approvals have decreased thereafter, reflecting in part the political instability prevailing within the country which discouraged both domestic and foreign investors. A rising trend in industrial investment is expected to take place under the current improved domestic and international situations. A recent Bank study 2/ projected the overall economic growth rate for Thailand over the Fourth Economic and Social Development Plan period (1977-81) at 6.2% p.a., and industrial sector growth at 9.4% p.a. provided that a suitable climate for private investment is maintained and demand for manufactured exports grows as in the past. The study projects gross capital investment in 1981 of the order of Bht 94 billion at 1962 constant prices, which implies a doubling of the Bht 42 billion of investments which took place in 1975. C. Government Policy and Investment Incentives 2.09 After the political instability of the previous three years, the newly established Government (October 1976) is firmly committed to helping 1/ Promotion certificates designate the industrial projects granted incen- tives by BOI under terms of the Investment Promotion Act of 1972; details of this Act are given in para 2.09 and Annex 10. Since 1971, according to BOI statistics, about 60% of total manufacturing investment has been granted "promoted" status and benefits; the balance consists of "other" or "non-promoted" projects. 2/ "Economic Memorandum on the Current Economic Situation and Prospects of Thailand," IBRD Report No. 1280a - TH, October 1976. -4- restore investors' confidence and accelerate growth. As detailed in Annex 10, under the Investment Promotion Act of 1972, BOI is empowered to grant invest- ment guarantees and incentives. In selecting investments for promotion, BOI takes into account the country's general development objectives, including regional development, export growth, employment creation, skill upgrading and encouragement of Thai participation with foreign capital in joint ventures. BOI provides two kinds of incentives: (i) standard investment incentives consist of guarantees against nationalization and competition by new state enterprises; authorizations to own land, to transfer funds abroad, and to hire foreign experts; tax reductions or exemptions from import duties and business taxes on machinery and equipment, and exemption from corporate in- come tax; and (ii) special promotional incentives relate to the geographic dis- persal of investments and export oriented industries which include reduction of import duties and business taxes, accelerated depreciation and reduction of corporate income tax after expiration of standard income tax holiday. D. Foreign Investment 2.10 Foreign direct investment has made substantial contributions to the Thai economy, especially in textiles, metal products, transport equipment and chemicals. Joint ventures of Thai and foreign partners accounted for 69% of the registered capital (Bht 13,900 million or US$695 million) of all enterprises which obtained promotional privileges between October 1960 and September 1976, with foreign investors providing about 41% of the joint venture capital (Annex 11). Japan is by far the principal source of Thailand's foreign direct investment, followed by the U.S., the Republic of China, Hong Kong and the U.K. 2.11 Prior to the enactment of the Alien Business Act in November 1972, foreign investors were allowed to engage in any business activity in Thailand. As detailed in Annex 12, this Act imposed restrictions on foreign investment in some activities, e.g. rice farming, domestic trade in agricultural products, construction and several service professions. Existing foreign firms engaged in other agricultural production, light industry, handicrafts, most retail trades, domestic transportation and heavy industry and mining are permitted to continue operations, but are not allowed to increase their annual production or sales by more than 30% over their 1972 level. Enterprises granted privileges under the Investment Promotion Act, however, are exempted from this restric- tion. Another law, the Alien Occupation Act, which reserves to Thai nationals certain occupations including accounting, was approved in December 1972 but has not been administered rigidly and, presumably, will continue to be admin- istered reasonably under the present Government policy in favor of attracting foreign investment. E. Pagrams for Regional Development and Industrial Estates 2.12 'he Government has been trying to disperse industries to the various regions of the countrv through administrative decentralization, land reform and establishment of trowth poles in the Northeast, the North, the East and -5- Lhe vouth (Annex 13). However, regional development is still in its early stage and, over the short- to medium-term, it is expected that investment will gravitate, as in the past, mainly to the Bangkok area. A feasible fra3? phase solution is to guide industry away from the congested urban ca-nter to the rural periphery of the Greater Bangkok area. This will re- quire a firmly administered land use plan (Annex 14), and the provision of nrepared sites and services, housing and other facilities as incentives to attract both industry and its work force to the outer locations. Although the official land use plan under the Town and Country Planning Act, 1973, has been approved by both the Cabinet and the National Assembly, its enforce- ment in the Bangkok urban area has not as yet been very effective. During negotiations, however, IEAT submitted satisfactory evidence of steps taken under the Cabinet Resolution on Industrial Zoning of August 10, 1976 to enforce more effectively the relocation of industry outside the congested center of Bangkok. 2.13 Industrial estates not only contribute to more rapid industrializa- tion but help maintain a balance between industrial growth and the planning and implementation of infrastructure. By concentrating a number of firms in one prepared area, as opposed to haphazard locational decisions by individual investors, they can provide both offsite (external) and on-site (internal) infrastructure more efficiently and at less cost. The Lat Krabang Industrial Estate project will also include an area designated as an Export Processing Zone (EPZ). This EPZ will be physically similar in all respects to the general industrial estate. It will, however, be fenced and controlled by the customs authorities so that the export-oriented industries located within the EPZ will enjoy easy tariff-free entry of raw and intermediate materials and reexport of finished products. 2.1.4 The project has been located in keeping with the zoning objectives of the Bangkok Master Plan and is the first of several proposals under study by the Industrial Estate Authority of Thailand (IEAT) for the greater Bangkok area. These proposals are part of a long range plan which will include the establishment of industrial estates in the Northern and Northeastern regions as well as in the Bangkok area (Annex 15), as specified in the Fourth Five- Year Plan (1977-81) published in January, 1977. III. MARKET A. Comparative Advantages of the Greater Bangkok Area 3.01 As already noted, it is likely that most new manufacturing facili- ties will continue to be attracted to the Bangkok area for some years to come. Bangkok is the capital and Government administrative center as well as the country's major port and its financial and commercial center. Its concen- tration of population (4.3 million) and relative wealth provide the largest - 6 - market for goods and labor inL Thailand. Physical infrastructure, while deficient in many respects, is superior to that available in other parts of the country. B. Demand fcr Industrial Land - Greater Bangkok Area 3.02 Growth of manufacturing investment in Thailand has been projected to i981 by Bank staff (Annex 16). Assuming conservatively that 65% of all new organized manufacturing investment will take place in the Greater Bangkok area, demand for industrial land has been estimated, using historical data on capital investment/land ratios obtained from BOI, as detailed in Annex 16. According to this analysis, between 1977 and 1981 effective demand for industrial sites in and near Bangkok is forecast to total 890 ha. The Lat Krabang project will provide some 116 ha of land for sale/lease.during this period, or only 13% of forecasted total demand. C. Availability of industrial Land - Greater Bangkok Area 3.03 The Bangkok Master Plan defines areas encompassing a total of 9,655 ha reserved for industry in the municipality and the surrounding chang- wats (provinces). At the end of 1976, about half of this land was already occupied by industry. The table below summarizes land availability, including existing industrial zones and planned estates, from the detailed tabulation of Annex 17. It will be noted that only 470 ha of the 4,850 ha available are intended to be developed as planned industrial estates. Industriai Land Availability - Greater Bangkok Area, 1976 Amt. Occupied Land Available Industrial Zones Area at end-1976 After 1977 (changwat) (ha) (%) (ha) Phra Nakhon (incl. Bangkok City) 4,490 70 1,365 hionburi 405 80 80 Sam'ttprakan 4,760 28 3,405 Total 9,655 50 4,850 Land Amt. Occupied Amt. Available Available Planned Industrial Estates Area at end of 1976 up to 1981 after 1981 (town or site) (ha) (ha) (ha) (ha) Bang Chan (complete) 55 55 - - Lat Krabang 116 116 - Nava Nakorn 113 113 - Bang Poo 160 80 80 Klong Dan 26 *- - 26 Total 470 55 309 106 3.04 An evaluation of these various sites, using as criteria their size, physical characteristics, ease of access to the port and airport, availability of labor, utilities and transportation and cost of develop- ment, suggests that while the Lat Krabang estate does not achieve the highest rating in every criterion taken individually, its characteristics overall place it at or very close to the top of the list. Proximity and good access to the seaport, airport and railway, and the absence of local urban congestion are among its most attractive features. D. Prospects for the Lat Krabang Industrial Estate 3.05 Many factors affect investors in selecting suitable locations for factories. The price and terms of sale of developed industria estate land are important considerations in comparison with the alternati"v costs of acquiring raw land individually and then bearing all development expenditures. Assuming competitive pricing, foreign investors are likely to favor an industrial estate on account of the complex and difficult procedures for acquiring land from private smallholders, and this bias has been set at 65% for purposes of forecasting demand. 1/ Fully Thai-owned industries might be relatively less biased in favor of estate sites, partly on account of local land ownership interest, and the "capture ratio" for this class of enterprise has been set at 50%. Using BOI data on past investments and land requirements .for different categories of industry, the demand for estate land is projected as follows: Projected Demand for Industrial Estate Land Greater Bangkok Area, 1977-1981 Estimated Capture Demand for Estate Land Category Land Requirement Ratio 1977-81 Annual (ha) (%) (%) (ha) (ha) Promoted Projects -with foreign equity 267 60 65 174 35 -fully Thai-owned 178 40 50 89 18 Sub Total 445 100 263 53 Non-promoted Projects -with foreign equity 27 6 65 18 4 -fully Thai-owned 418 94 50 209 42 Sub Total 445 100 227 46 Total 890 100 490 99 1/ The history of a similar Bank supported project in Indonesia indicates that a 65% "capture ratio" is conservative. Among medium-scale fac- tories, it is higher; only very large factories tend to favor independent locations. -8- The projected demand for 490 ha of estate sites exceeds by 58% the total planned availability of estate sites which (as noted in para. 3.03) is esti- mated at 309 ha by 1981. Not all of the planned estate construction will in fact be completed by 1981, so that demand is likely to exceed supply by a larger margin than here indicated. 3.06 The projected sale/lease of the Lat Krabang estate land is only about 36 ha in 1979, 26 ha in 1980, 27 ha in 1981 and 27 ha in 1982-1983 for a total of 116 ha. In 1981, the land sold/leased by the project will be 89 ha, which is only 18% of the demand and 29% of the planned supply. As shown in Annex 18, compared with the land sale prices set for the Nava Nakorn estate, which is being privately developed, the sale/lease prices projected for the Lat Krabang estate are conservative. The demand for space in the EPZ, for which 20 ha have been allocated in the project site (about 12% of the plot), is expected to be substantial, although an accurate demand forecast for the EPZ cannot be made with presently available data. The historical rate of growth in Southeast Asia of manufactured exports incorporating imported components suggests that the EPZ will not face substantial difficulty in disposing of its sites. Given Thailand's comparative advantages such as low labor cost, geographic location and Government incentives, readily available factory space at reasonable cost will provide an additional attraction to industries of the types operating in Singapore, Malaysia, Hongkong, Taiwan and Korea. This conclusion is supported by the interest that 19 firms have already shown in occupying land within the EPZ at Lat Krabang. E. Industries Expected on the Lat Krabang Industrial Estate 3.07 The estate will be open to industries of all types with the excep- tion of those with very heavy pollutive activities, which cannot be handled by the planned treatment facilities on the estate. It is expected, however, that the occupancy pattern will be heavily biased towards medium-scale, rela- tively clean factories, engaged in light manufacturing activities, as has already occured at Bang Chan. Consumer goods industries (such as textiles, furniture, electrical appliances, toys, shoe-manufacturing and leather prod- ucts) are expected to be well represented; also intermediate goods (packag- ing materials, electrical and electronic components), construction materials, light metal-working and some chemical processing industries. The EPZ would accommodate assembly type industries (e.g., textiles, electronics, watch making) based on imported raw and intermediate materials. IV, INDUSTRIAL ESTATE AUTHORITY OF THAILAND (IEAT) 4.01 IEAT, the executing agency for the project, is an autonomous gov- ernment institution created under National Executive Council Decree No. 339, promulgated December 13, 1972 (Annex 19), and responsible for planning and executing all Government supported industrial estates and EPZs in Thailand. Operations were initiated in October 1973 when the Bang Chan Estate was turned over to IEAT by the Department of Industrial Works. Organizationally, -9 .. a governi. 3Board. appointed by the Cabinet is responsible for policy and overal'L su..E-:3ion while operating management is headed by a Director General, who i:s also ex,-officio member of the Board. Functionally, there are five departmnenrs: (i) Office of the Director General - responsible for policy planning and overall control of operations, (ii) Technical and Projects - p7eparatio-n of new projects, (iii) Operations-construction and management of -ndustrlal estates and EPZs, (iv) Finance, and (v) Administration. 4.02 Details of IEAT's history, organization, operations and Board composition are given in Annex 20 which also contains the Authority's finan- cial history, briefly summarized below: IEAT - Summary of Financial Results, 1974-1976 (Bht million) FY 1974 FY 1975 FY 1976 Income Revenue (land rent, maint. & service charges) 1.6 2.1 2.8 Expense (staff, adm., repairs, deprec.) 3.3 4.9 6.5 Net Income (Loss) (1.7) (2.8) (3.7) Selected Balance Sheet Data Current Assets 2.4 4.9 21.8 Net Fixed Assets 28.5 28.2 54.1 Long-Term Debt 11.6 11.2 11.7 Current Ratio 2.7 5.1 17.8 L.T. Debt: Equity 39:61 35:65 16:84 4.03 Revenues covered less than half of the expenses (including provision for depreciation) in 1975, and the deficit became even larger in 1976. This is primarily the result of two factors: (i) all land at Bang Chan had been leased at low uneconomic rates by the former owner, the Department of In- dustrial Works (Annex 21); and (ii) the full administrative costs of IEAT have so far been charged to the Bang Chan estate, its sole existing operation, even though most of these costs are connected with planning and development of new projects. Deficits are covered by national budget appropriations and this situation will of necessity continue until future estate operations begin to generate sufficient income to close the gap. Nevertheless, measures should be taken to bring central office expenses more in line with operating require- ments. The number of headquarters staff could be reduced from the current level of 95 without detriment either to Bang Chan or the overall operations of IEAT. IEAT has agreed to undertake measures to improve its financial per- formance both at headquarters and at Bang Chan and will to this end present to the Bank by December 31, 1977 a suitable plan of action. Possible measures to be considered would include; (i) adjusting contracts at Bang Chan to charge more economic rates for rentals and all services provided to estates' occupants, (ii) charging more economic fees to private estates and other organizations for services rendered to then and (il.) reduction of headquarters staff by redeployment of some of the existing personnel to the Lat Krabang project. 4.04 Although IEAT has gained experience in estate planning and opera- .ions since its :Vintion in Octob*tr 1973, technical assistance will be required to strengthan its management, engineering and commercial skills. To this end, a technical assistance component has been included in the project as outllned in the next chapter. V. T"HE PROJECT A. ie tS -e 5.01 The project consists of: (i) the acquisition by IEAT, the estate omner, ef 1,007 rai (162 ha) of raw land at Lat Krabang, 35 kms. east of Bangkok; (ii) development of serviced industrial sites suitable for some 120 medium-scale factories to be built by their owners; (iii) the construction of standard factory buildings for rental to between 20 and 30 small- and medium- scale industries; and (iv) establishment of an Export Processing Zone (EPZ) on I20 ral (20 ha) of the land. Additionally, technical assistance will be .provided to IEAT by both UNIDO and IBRD for purposes of project execution and also to assist in planning future projects. More specifically, the components O :` th.e project are: si) Acquisition of 1,007 rai (162 ha) of raw land at Lat Krabang. (2) Land. fill and dike construction. {3) Construction of about 10 kms of- internal roads and a surface drain- age system. '4) Installation of an internal power and street lighting distribution system connecting with an external 25 MW substation. (5) Installation of a water supply and distribution system, including fire hydrants. (6) Installation of sewage disposal and waste treatment facilities. '7) Installation of a radio telephone system connected to an automatic branch exchange with a minimum of 200 lines. (8) Construction of an administration building and a maintenance work- shop. (9) Construction of five standard factory buildings of 2,160 m2 each, of which four will be located within the Export Processing Zone. (10) Construction of 2,500 m of housing for IEAT staff. (11) Engineering/Architectural Services and Technical Assistance. 5.02 The project will be carried out in two contract phases covering a four-year period with approximately half of the development taking place during 1977-79 and the other half during 1979-80. B. Detailed Features 5.03 The essential features of the project are discussed below: additional details are given in Annex 22. 1. Site Location, Characteristics and Acquisition 5.04 The 1,007 rai site (Map IBRD 11324R) has already been purchased for Bht 25 million (US$1.25 million) 1/, a price that is reasonable and competi- tive with other locations in the Greater Bangkok area. The site is served by two main highways, providing easy access to the city and harbour of Bangkok and is 38 kms northeast of Bangsue Railway Station connecting to the North and Northeast of the country and 40 kms southeast of the international airport. The size of the estate is to some extent arbitrary, but does re- present a reasonable compromise between the forecasted demand, which could justify a larger project, and financial and technical limitations of IEAT, which dictate a cautious step-by-step approach toward larger and more complex projects. The shortest route from the estate to Bangkok harbor (30 km) is along the Pharakhanong-Lat Krabang road, of which about 10 km need resurfacing. IEAT has requested the Bangkok Metropolitan Authority to accelerate the re- surfacing and widening program (already under way) so that work will be com- pleted by end-1978 and expects there will be no difficulty in meeting this schedule. 5.05 As a direct result of the Bang Chan estate project, located 15 kms north of Lat Krabang, where the 700 rai developed in 1968-1971 were fully leased by late-1974, flinburi has become an industrial "growth pole" with infrastructure (roads, power and telecommunications) available for a greatly expanded industrial community. Labor will be drawn from both Bangkok, by bus and canal transport, and the adjacent rural area including the town of Minburi (estimated population - 20,000). Workers' housing and other social infra- structure are planned for construction by the National Housing Authority (NHA) on Huamak Housing Estate situated some 6 km from the estate site. Satis- factory evidence has been submitted confirming that NHA is accelerating planned housing development at Huamak as well as at Bang Chan. 2. Site Development 5.06 Land Fill and Dike Construction; In the vicinity of Bangkok, developing paddy land into industrial sites requires either raising the average level of terrain by up to 1.5 meters (adding fill, compacting and 1/ Land was purchased from several land owners who made arrangements with the tenant farmers occupying the land to vacate the premises by mid-March 1977. This was accomplished without difficulty and perimeter dike construction was started shortly thereafter. - 12 - levelling) or the less costly alternative of building dikes (bunds) around the boundary and installing pumps for removal of sewage and excess rainfall. IEAT has opted for the second alternative. Pending completion of the topographic study and engineering design of flood control measures it has been assumed for purposes of financial analysis that bunding along the estate boundaries will average 1.75 m in height after compaction. only a small amount of land fill will be needed in a few selected areas. 5.07 Roads and Surface Drainage: The preliminary plot plan of the feasibility study (Map IBRD 16973) shows 10.2 kms of macadamized road aver- aging 8.5 m wide laid out in a rectangular pattern providing access to every factory plot. Detailed layout and specifications together with those for the surface drainage system, which will consist of channels and culverts parallel- ing the roads, are to be prepared as part of the detailed engineering design. Meanwhile, for purposes of cost estimation, standard macadamized roads built by the Department of Highways (DH) have been assumed. 5.08 Power: The maximum power demand at full occupancy has been estima- ted at 25 MW and will be drawn from a 22-kv high tension transmission line running close to the estate. A 25 MW transformer substation has been installed by the Metropolitan Electricity Authority (MEA) about 5 km west of the project which will connect with an internal overhead distribution network for power and street lighting. The internal distribution network will also be built by MEA but its cost will be advanced by IEAT and repaid by MEA in early eighties. 5.09 Water: Water demand at full oc5upancy for all industrial and sanitary3purposes is estimated at 6,000 m /day average with peak loads of 10,000 m /day and will be supplied by four deep wells tapping a known aquifer at a depth of 150 to 200 meters. Based on the water flow realized from the same iquifer at Bang Chan, the four wells are expected to yilld a minimum of 800 m /hr which, with two ground le3el reservoirs of 5,000 m capacity and two overhead storage tanks of 300 m' capacity each are adequate to supply the average and peak demands foreseen. The water storage system also ensures a reserve at all times for fire fighting purposes. 5.10 Sewage Disposal and Other Environmental Considerations: A central liquid waste treatment plant is planned as part of the estate infrastructure to handle all normal industrial and sanitary waste effluents. Aggressive wastes such as acid, alkali, oils or solvents will be required to go through pre-treatment at the factory point of origin before entering the collection system. The investment in the central treatment plant will be self-liquidat- ing as its capital cost will be recovered in the sale price/lease rent of land, and a separate charge will be made for operating and maintenance ex- penditures. Gaseous and liquid pollution of individual estate enterprises will be controlled through the standard rules and regulations (still to be prepared) governing factory operations on the estate; these will specify - 13 - allowable limits of contaminating matter in gases and liquids to be dis- charged. It has been agreed that the waste treatment facilities will be designed and operated in accordance with generally accepted standards and that suitable estate rules and regulations, including guidelines on industry suitability and factory building design standards, will be prepared by IEAT and submitted to the Bank by June 30, 1978 for review and approval. This will be the first Government attempt to control industrial pollution and should serve as a model for the future. 5.11 Telephones: At the full occupancy, the estate and its occupants would need 500 telephone lines. The Government and the Telephone Organization of Thailand (TOT) have agreed to IEAT utilizing of a 36 circuit radio tele- phone system connected to an automatic branch exchange with a minimum of 200 lines. The cost of this system will be shared by both TOT and IEAT. TOT expects no difficulty to have 120 telephone extensions by end 1978 and the remaining extensions as and when they are required. 3. Building Construction 5.12 Administration Building and Workshop: Two buildings are planned for the administration and maintenance of the estate but detailed designs have not yet been prepared. For financial anllysis purposes it has been assumed that the administration building (1,000 m ) will be a reinforced concrete structure, and the estate maintenance workshop and stores (500 m ) will be a less expensive construction with cinder block walls and pilasters supporting trusses and a corrugated asbestos roofing, both designed for easy expansion if required at a later stage. 5.13 Standard Factory Buildings: The project includes preconstructed standard factory buildings to be rented to small and medium-scale enterprises. There is no way of forecasting accurately the effective demand for such industrlal space, but initially land has been allocated for five buildings of 2,160 m each to accommodate together from 20 to 30 enterprises. Even this modest commitment will be carried out in phases in order to reduce the invest- ment risk while testing the market. If the buildings are rapidly occupied and there appears to be, in fact, higher demand for such facilities than presently forecast, additional land can be allocated for further construction. 5.14 Housing: Since most of IEAT's employees to be transferred to Lat Krabang presently reside in Bangkok center, it has been deciled to construct some twelve to fifteen housing units totalling 2,500 m to house them on site in order to facilitate their transfer to the new estate. 4. Export Processing Zone (EPZ) 5.15 As noted in para. 3.06, some 20 ha will be delineated as an EPZ with the necessary fencing and gates for customs control. Firms will have the options of building their own factories, renting IEAT's standard factory buildings or negotiating with IEAT to build factories to their specific needs for long-term lease or hire-purchase. - 14 - 5. Engineering/Architectural Services and Technical Assistance 5.16 This component of the project provides for: (a) engineering/ architectural services and (b) technical assistance and training fellow- ships, to help IEAT in the implementation of the project and to enhance its capabilities in planning, executing and operating industrial estates and EPZs: (a) Engineering/Architectural Services: Under an engineering/ architectural contract (para 6.04) responsibilities of the firm will include: (i) detailed engineering design and specifications for all civil works, (ii) preparation of tenders and evaluation of bids and (iii) supervision of civil works contractors. (b) Technical Assistance and Training Fellowships: A cooperative arrangement has been considered with UNIDO under which a 4-man advisory staff of consultants will be attached to IEAT for a period of about 2 years, funded by UNIDO. Selection of consult- ants will be carried out in consultation with the Bank. The team will consist of: (i) two Industrial Estate Advisors with complementary experience in project analysis, design and management of industrial estates and EPZ's; (ii) an Industrial Economist with experience in analyzing the locational, sectoral and marketing aspects of new estate project development; (iii) an Environmental Control Expert. A small allocation of Bank loan funds under the project (para. 6.05) is intended to supple- ment the large UNIDO contribution and will cover foreign exchange costs of specialized short term consultants, as needed, and training fellowships for IEAT key personnel. 5.17 IEAT's professional staff will, in the normal course of negotiating land sales and lease contracts and later monitoring factory operations, advise firms on building design, pollution control and other aspects of industrial operations. As a Government agency, it is entirely appropriate for IEAT to concern itself also with one of the major objectives of the Third Plan, i.e. employment growth. Whenever possible, in reviewing applications for estate occupancy, IEAT will advise applicants to focus on the potential benefits of labor intensive technology. It was confirmed during negotiations that IEAT will in fact pursue this objective by giving priority for estate occupancy to labor intensive industries. 6. Project Management 5.18 IEAT will appoint by December 1977, in consultation with the Bank, a Project Manager and an Advisor who will be responsible for project exe- cution on a full-time basis. The Project Manager will be a senior staff employee with executive-level experience and qualifications in public and/or private sector construction projects. The Advisor will be a qualified civil engineer who will function as a planning and development expert and liaise directly with the Engineering/Architectural Contractor and civil - 15 - works contractors during project execution. It has been agreed that if suitable Thai personnel are assigned to these positions, Bank funds will be disbursible against that portion of expenditures which would have been foreign exchange costs if expatriates had been hired. 7. Land Use Pattern 5.19 According to the Consultants' preliminary study (Lay-out Plan, Map IBRD 16973), some 142 ha will be allocated to the general estate area and 20 ha to the EPZ as detailed below: Lat Krabang Estate - Land Use Pattern General Export Combined EPZ & General Industrial Estate Processing Zone Industrial Estate (ha) (rai) (ha) (rai) (ha) (rai) (x) Industrial Plots 100 618 12 75 112 693 68.8 Rights of Way 18 114 5 29 23 143 14.2 Utilities 6 40 3 16 9 56 5.6 Landscaping & Recreational 11 71 - - 11 71 7.0 Commercial Units 4 24 - - 4 24 2.4 Maintenance Units & Others 3 20 - - 3 20 2.0 Total 142 887 20 120 162 1,007 100.0 Of the 693 rai (112 ha) allocated to industrial plots, about 46% are expected to be sold and 54% leased to some 120 firms building their own factories on sites averaging about 6 rai each or renting space in standard factory build- ings. Some 24 rai have been reserved for lease for commercial uses which might include stores, restaurants and banks. C. Project Execution Schedule 5.20 As noted in para. 5.02, construction will be carried out in two con- tract phases, each phase planned so as to execute about half of the total civil works program. Phased development of industrial estates is useful in main- taining capital investment more or less in line with actual demand for sites and services, which, given the uncertainties, could differ from the forecast. The planned construction schedule is given in the bar chart Annex 23 and is based on: (i) selection of the engineering/architectural contractor by the second quarter of calender 1977, (contract was signed in second quarter); (ii) starting of the engineering design by mid 1977; (iii) initiation of civil works by the fourth quarter of calendar 1977, (actually, dike construction began in the second quarter of 1977); (iv) completion of phase one construction by mid-1979 and (v) completion of phase two construction by end-1980. To help ensure realization of this timetable, it has been agreed that the Project Manager and an Assistant, who will function as a Planning and Development Advisor, will be appointed no later than December 31, 1977. - 16 - VI. COST ESTIMATES AND FINANCIAL ARRANGEMENTS A. Project Cost 6.01 Estimated capital cost of the project in current terms is summarized below from Annex 24: Capital Cost Estimate Local Foreign Total Local Foreign Total -----(Bht million)---- (US$ million)----- % Land Acquisition 25.0 - 25.0 1.25 - 1.25 15.4 Land Development & Site Equipment 42.6 50.6 93.2 2.13 2.53 4.66 57.5 Buildings 17.4 18.6 36.0 0.87 0.93 1.80 22.2 Engineering/Architectural Services 4.0 2.0 6.0 0.20 0.10 0.30 3.7 Technical Assistance & Training a/ 0.6 1.4 2.0 0.03 0.07 0.10 1.2 Base Cost 89.6 72.6 162.2 4.48 3.63 8.11 100.0 Contingencies: Physical (10%) 6.5 7.2 13.7 0.33 0.36 0.69 8.4 Price (av. 8% p.a.) 10.5 11.7 22.2 0.52 0.59 1.11 13.7 Installed Cost 106.6 91.5 198.1 5.33 4.58 b/ 9.91 122.1 a/ Excluding Technical Assistance financed by UNIDO. b/ Of which it is estimated that 85% is the direct and 15% the indirect foreign exchange components. Costs were estimated during the November 1976 field mission but in the light of the modified layout proposed by the consultants to whom the engineering/ architectural contract has been awarded, there have been some changes and a cost reduction of US$4.6 million. A comparison between the mission's estimates and those by the consultants is given in Annex 22, Addendum 1. The cost reduction is due to a shorter execution period, one central waste treatment plant instead of two, power and telephone costs being mainly met by the utility companies, technical assistance primarily funded by UNIDO and, most important, interest during construction being treated as an operating cost instead of capitalized. - 17 - 6.02 ?hysical contingency of 10% of base line cost, not including cost cf raw lan., is considered a reasonable and safe assumption since cost esti- mates are based on recent construction experience in Bangkok. Price escala- tion composed of 9% p.a. for civil works and 7.5% p.a. for equipment has been provided for during 1977-79, declining to 8 and 7% in 1980 respectively. B. ':?nancinR Plan 6.33 Financing of the project will consist of (i) Government funds contributed to IEAT as equity, (ii) the project's internally generated funds from the sale of industrial sites and services and (iii) a Bank loan, as summarized below: Financing Plan (Millions) Bht US$ % Equity Treasury Contribution 77.4 3.87 39.1 Internal Cash Generation 25.7 1.29 12.9 Total Equity 103.1 5.16 52.0 Long-Term Debt Bank Loan 95.0 4.75 48.0 Total Financing 198.1 9.91 100.0 The Government's equity investment of Bht 77.4 million will be made during project implementation. Part of this equity has already been paid in for land purchase (Bht 25 million) and part for land development expenditures. Internal cash generation will derive from the sale of industrial sites as projected in para 7.01. The Bank loan will be made directly to IEAT for 20 years including 5 years grace at an interest of 7.9% per annum. In keeping with past practice in Thailand the usual guarantee fee of 1-1/2% will be waived. Interest and commitment fee on the Bank loan during the grace period will be met from internal cash generation or from the Government contribution. C. Procurement, Use of Bank Loan and Rate of Disbursement 6.04 All Bank financed procurement, i.e., all project components with the exception of land acquisition, will be tendered internationally in ac- cordance with Bank guidelines. For the engineering/architectural services contract, IEAT has already awarded the contract to a consortium of consultants consisting of four Thai consulting firms in association with a US firm. 1/ Qualified local bidders for equipment and materials will, for purposes of bid evaluation, receive a preference margin of the lower of either the prevailing duty on comparable imported products or 15% of the c.i.f. price of the im- ported product. 1/ The Bank agreed to the selection based on a comparative evaluation of 9 proposals by Thai-based engineering/architectual firms; no Bank funds will be allocated to this project component. - 18 6.05 Percentage disbursements of Bank funds are tabulated below: Allocation of Bank Loan (US$ million) Total Bank Ratio of Expenditure FE Component Allocation Bank/FE (M) Land Acquisition 1.25 Land Development, Site Equipment and Buildings 8.16 4.38 4.15 94.7 Eng./Arch. Services, Technical Assistance and Training 1/ 0.50 0.20 0.20 100.0 Unallocated - - 0.40 _ Total 9.91 4.58 4.75 1/ Including US$300,000 for architectural/engineering services and US$200,000 for technical assistance and training. As noted in para 5.16, the bulk of technical assistance and training (estimated at about US$400,000) will be funded by UNIDO. Annex 25 shows the estimated quarterly disbursement schedule. In order to ensure that the project can be carried out without financial constraints, assurances were obtained that: (i) Government equity of Bht 77.4 million would be made available as needed for the project execution schedule (para. 6.03); (ii) internal cash generation of the project, primarily on account of land sales, would be reserved for reinvestment as equity in the project as and to the extent needed by the project execution schedule; and (iii) any additional funds that may be needed to complete the project, to the extent not available from IEAT's resources, would be provided promptly by the Government on terms satisfactory to the Bank. VII. FINANCIAL ANALYSIS A. Revenue 7.01 Based on the expected demand for industrial plots on the estate, land sales and lease are projected as shown in the following table: - 19 - Projected Land Sales and Lease Schedule. 1979-1983 (rai) Land Sales 1979 1980 1981 1982 1983 Total Industry - Cash 80 60 60 56 0 256 - 4-Year Term 20 15 15 14 0 64 Sub-total 100 75 75 70 0 320 Land Lease Industry 125 80 80 76 0 361 Commercial Units 0 6 6 6 6 24 Standard Factory Bldgs. 0 0 3 2 2 7 Warehouse and Others 0 2 2 1 0 5 Sub-total 125 88 91 85 8 397 Total 225 163 166 155 8 717 a/ a/ Total land sold/leased of 717 rai is less than total area of 1,007 rai by: 143 rai for rights of way, 71 rai for landscaping, 56 rai for util- ities and 20 rai for maintenance units and others. Although in Thailand deferred payments on land purchases are not customary, IEAT plans to offer a four-year payment scheme besides cash sales. In this way, it is hoped to expand the market for industrial sites by making them available more easily to smaller firms whose operations, while sound and profitable, may be subject to liquidity constraints. The best estimate of the future split between cash and deferred payment sales 1/, therefore, projects in the above table an 80:20 sales pattern. Should the ratio shift in favor of more term sales, cash flow problems are still not anticipated since land mortgages can be financed in Thailand and the interest paid by IEAT will be offset by the interest charged to estate occupants. According to IEAT, many entrepreneurs might prefer to lease land rather than to purchase and, as indicated in the above table, some 360 rai are earmarked for disposal on a 20-year lease basis. 7.02 Two basic factors must be taken into account in setting land prices; (i) they must be competitive with alternative sites in the area, and (ii) they should provide a minimally suitable financial return on total funds invested. 1/ Judgment arrived at in consultation with IEAT, mortgage bankers and the Association of Thai Industries in Bangkok. - 20 - The only comparable developed industrial land available in the Bangkok area is the Nava Nakorn project where sites are more expensive than those proposed at Lat Krabang, as shown in Annex 18. Apart from Nava Nakorn, an entrepreneur may opt for setting up his factory on a plot purchased as raw rice-paddy land, and then undertake all development costs for fill, grade, dike construction, access roads, and water supply at his own expense, while negotiating power and telephone connections with the public utilities. Analysis of these alterna- tives led to a base price of Bht 250,000/rai 1/ in 1979 in current terms, when land sales will be initiated, with an annual increment of 10% thereafter for new purchasers. It is assumed that four-year land purchase contracts will be offered at a flat price of Bht 313,000/rai in 1979 and increase by 10% each year thereafter. The deferred payment plan assumes a down payment of 20% and four equal annual installments of 20% each thereafter with an interest charge of 12% on unpaid balances imputed in the contract price. 7.03 The projected prices for land will yield a financial return of 11.5% in constant 1976 terms (para 7.12). As with all projects of this type, land prices must be kept under constant review and revised in accordance with such factors as realized rates of land sales, general trends in land values, com- petition and financial considerations. 7.04 IEAT has agreed that land prices and terms will be based on the two principles: (i) maintaining competitiveness with off-estate alternatives; and (ii) insuring a minimum 10% financial return in real terms on the estate investment. Prices will be reviewed annually and revised, if considered necessary, in consultation with the Bank. 7.05 Annual rental for lease of industrial plots is assumed to average 10% of the respective sale price. For commercial plots (e.g. bank, restaurant and stores), the established Thai practice for commercial leasing is an initial payment as premium for the leased land, followed by an annual rental for a period of 20 years. At the end of this period, a new premium and terms of rental will be negotiated between IEAT and the commercial developers. For purposes of financial analysis, it has been assumed that a premium equivalent to about 80% of the selling price for an equivalent industrial plot will be charged, with 5% of the premium charged as annual rental payments. The commercial plots occupy the best locations in the estate and would command up to twice the price of estate industrial plots of similar size if sold outright. 7.06 The first five standard factory buildings -- one general purpose and four for the EPZ -- are scheduled for completion by end-1980 and initial 1/ This is estimated to be at least 10% below the cost for a company to purchase and develop its own plot, without taking into account the time factor which strongly favors estate sites. -21- 2 occupancy by 1981. Annual rental has been set at Bht 370/m or Bht 285,000 per factory unit of 770 m on leases signed in 1980 for both general purpose and EPZ buildings. As with the land lease pricing formula, the starting rental is assumed to increase 10% per annum thereafter, for new tenants. As yet, IEAT has no firm policy on the lease period which can range from 1, 2 or 3 years up to 5 or even 10 years, with provision for periodic rent adjustments. For purposes of financial analysis, it has been assumed that all rental income will reflect an annual 6X increment, paralleling the anticipated general inflation trend. IEAT has agreed that: (i) the standard lease contracts adopted for land (both industrial and commercial) and factory rental will be formulated by June 30, 1978 in consultation with the Bank and will specify inter alia the starting lease and rental rates, duration of contracts and adjustment formulae and (ii) terms of new land lease and building rental contracts will be reviewed at yearly intervals and revisions, if necessary, will be adopted in consultation with the Bank. Maintenance and service charges will be assessed against factory owners to cover the cost of water supply, sewage treatment, grounds and road maintenance and security. 7.07 Revenues from all sources are forecast as summarized below from Annex 26. Revenue Buildup, 1979-85 (Current Bht million) 1979 1980 1981 1982 1983 1984 1985 Land Sales 26.3 21.7 23.9 24.5 - - - Land Lease 3.1 7.7 10.8 14.2 15.6 14.0 15.2 Factory Rental - - 1.7 3.0 4.5 4.7 5.0 Warehouse Rental - 0.5 1.2 1.6 1.7 1.8 1.9 Maintenance Charges 0.2 0.3 0.4 0.6 0.6 0.7 0.7 Water & Sewage Charges 4.0 7.4 11.2 15.2 16.3 17.3 18.3 Repayment by MEA - - - - 2.0 2.8 - Total 33.6 37.6 49.2 59.1 40.7 41.3 41.1 The revenue forecast assumes the 80/20 split between cash and deferred payment terms on land sold as projected in para 7.01. As is customary in land develop- ment accounting practice, revenue from land sales is booked as income in the year the sales contracts are signed even when deferred payments are made. Thus, while revenue from land sales appears to end in 1983, on a cash flow basis this revenue will continue, although at a declining rate, until 1986 as mortgages are paid off. - 22 - B. Income and Cash Flow Forecasts 7A08 Projected operating costs, income and cash flow to 1983 are sum- marized belov from Annexes 27, 28 and 29. Summarized Income and Cash Flow Forecast, 1976-84 (Current Bht million) la 1976 1977 1978 1979 1980 1981 1982 1983 1984 Income - Gross Revenue - - - 33.6 37.6 49.2 59.1 40.7 41.3 Less - Cost of Land Sold - - - 20.7 15.5 15.5 14.5 - - - Operating Costs - - 4.7 4.0 8.9 9.3 11.8 11.5 12.2 - Depreciation - - - - 1.9 3.9 3.9 3.9 3.9 - Interest & Com. Fee - - 1.6 4.5 7.1 7.5 7.6 7.5 7.0 - Tax on Land Sale - - - 0.6 0.5 0.5 0.5 - - Net Income - - (6.3) 3.8 3.7 12.5 20.8 17.8 18.2 Cash Flow Sources of Funds - Net Income - - (6.3) 3.8 3.7 12.5 20.8 17.8 18.2 - Depreciation - - - - 1.9 3.9 3.9 3.9 3.9 - Cost of Land Sold /b - - - 20.7 15.5 15.5 14.5 - - - Govt. Contribution 25.0 21.5 20.0 10.9 - - - - - - Loan Increase (IBRD) - - 23.0 60.0 10.0 2.0 - - - - Decrease in Mort. Rec. - - - (5.0) (2.9) (2.3) (1.2) 4.5 3.3 Total Sources 25.0 21.5 36.7 90.4 28.2 31.6 38.0 26.2 25.4 Uses of Funds - Project Investment 25.0 10.9 45.6 90.2 26.3 - - - - - Loan Repayment (IBRD) - - - - - - 3.2 6.4 Total Uses 25.0 10.9 45.6 90.2 26.3 - - 3.2 6.4 Surplus (Deficit) - 10.6 (8.9) 0.2 1.9 31.6 38.0 23.0 19.0 Cumulative Surplus - 10.6 1.7 1.8 3.7 35.3 73.3 96.3 115.3 Debt Service Coverage - - - - - - - 3.2 2.4 /a Occasional discrepancies in addition are caused by rounding of numbers. /b Cost of land sold is an estimated average for the whole project and normally varies from the realized land development expenditures in any given year. In the cash flow statement, it is treated as a source of funds since the actual expenditures on land development for each year are included in the uses of funds. If cost of land sold were not added back in the sources of funds, there would be double debiting. - 23 - The operating costs shown above are detailed in Annex 27, and include a 10% share of IEAT's central office staff and overhead costs. Salaries and over- head are assumed to escalate by 6% per annum in line with the general infla- tion rate assumed throughout this report. IEAT is exempted from payment of income taxes, but certain business taxes on land and other assets as well as land sale tax will be assessed and these are included in general administra- tive costs of the project. Annual straight line depreciation rates prevailing in Thailand have been applied - 2.5% for roads and drainage, 4.0% for buildings, 5.0% for capitalized engineering costs, 7.5% for water, power and sewage disposal facilities and 10% for miscellaneous equipment. 7.09 As is seen from the cash flow projectinn, the project may have a transitory cash flow difficulty especially if land disposal were to be slug- gish in 1979 and 1980. Since the bulk of capital investment expenditures has to be made in these years and these expenditures have to be financed in part by internal cash generation, IEAT will have to activate its promotional activities so that adequate internal resources are available. Should inter- nal cash generation not be enough, additional Government contribution will be required. 7.10 IEAT has agreed to undertake whatever action is necessary to main- tain a liquity ratio of at least 1.25:1, a debt:equity ratio of no higher than 65:35 and minimum debt service coverage of 1.5:1 during the period 1983-1997. The overall IEAT financial projections show not only no problem in meeting these specified ratios, but assure the provision of substantial cash flow for investments in other projects now under review. (Annex 20, Addendum 6). C. Balance Sheets and Audit 7.11 Proforma balance sheets to 1998 are given in Annex 30. They in- dicate that the current ratio is over 16 in 1983 (assuming no reinvestment of earned surplus) and increases thereafter throughout the period of repayment of debt. The debt:equity ratio starts at 28:72 in 1978, increases during the ensuing years reaching 51:49 in 1981 but improves quickly thereafter. Both the current ratio and debt:equity ratio projections do not take into account the reinvestment of earned surplus in new projects which, to the extent compatible with maintaining necessary liquid reserves (para. 7.10), is one of IEAT's prime objectives. An interesting feature of the assets growth pattern is the project's ability to carry mortgage receivables rather than having recourse to bank finance. This means, in effect, that should the project investment demands exceed available cash resources, substantial additional cash could be generated by financing mortgage receivables. As a government agency, IEAT's books will be audited annually by the National Audit Council (under the jurisdiction of the Prime Minister); this is satisfactory to the Bank. D. Financial Return 7.12 The financial return over 25 years in constant 1976 terms, cal- culated in Annex 31, is 11.5%. This is satisfactory and is close to the - 24 - assumed 11% opportunity cost of capital in Thailand and higher than the 10% return which has been assumed in this project as the minimum acceptable limit. The land remaining in the possession of IEAT (about 415 rai) has been assumed to have a residual value of Bht 62.1 million (1976 prices); this is conserva- tive since land values will certainly increase in real terms over the 25-year period because of land scarcity in the Bangkok area. With suitable mainte- nance, buildings and other assets (e.g., water supply system) will have substantial value at the end of the period but no residual values were assumed for these facilities in the calculation . In view of these assumptions, the financial return calculation is considered conservative. E. Risk Analysis 7.13 If we assume an extended period of international uncertainty and economic stagnation, more pessimistic assumptions may be made to test what might be termed the "worst case". A prolonged period of economic decline could retard industrial investment to the point where demand for industrial sites would actually be lower than the modest 30 ha a year to be made avail- able at Lat Krabang between 1979 and 1982. We have therefore assumed a "worst case" based on a slowdown in occupancy so that in 1979/80 IEAT would decide to stretch out the construction to 1981 (1 year longer than originally planned) with project costs increasing according to the assumed price escala- tion and full occupancy being achieved only in 1984. On this basis, the financial return of the project would be 7.7%. This would still be acceptable in view of the economic benefits discussed below. VIII. ECONOMIC AND SOCIAL BENEFITS A. Economic Rate of Return 8.01 The project's direct net benefit to the national economy is illus- trated by deriving the economic rate of return. This is done by revaluing the financial costs and benefits by valuing tradables at border prices and using conversion factors to obtain the economic values of non-tradables. The base case economic rate of return is 14% (Annex 32). The sensitivity of the economic rate of return to changes in conversion factors and key variables was examined. Even in the worst case of one year delay in construction and two year delay in sales, the economic rate of return is still a satisfactory 8%. B. Acceleration of Industrial Investment 8.02 Prepared industrial sites and services ready for factory construction can significantly reduce the time interval between project conception and startup of operations. In Jakarta, for example, as part of the market survey for the Bank-supported Pulo Gadung estate, firms actively planning new fac- tories were interviewed. It was concluded that, on average, developed estate land ready for construction would reduce the time between approval of a factory investment by a firm and startup of operations by 1 to 1.5 years. It was further concluded that perhaps one out of five potential projects would - 25 - elthey be ceborted or seriously delayed for years if no viable alternative (an industr:7al estate) were available to the discouraging task of finding and developing a suitable factory site independently. The problem is equally acute in Thailand. Inadequate or non-existent land ownership records, obscure rules concerning land use, arbitrary time limits on tenure, lethargic bureau- cratic processing of land purchase agreements and applications for power, water and telephone services, problems generated by squatters and/or sub- mar--Inal small farmers, all operate to retard industrial development. Specifically, with respect to small- to medium-scale factories which are the prime market for this estate, these deterrants are greatly magnified since these firms do not normally have the resources - management, legal, capital - to persist in their objectives as do large-scale operations. Under the conditions noted above, without the Lat Krabang project all of the estimated 120 factories expected on the estate would be delayed and some of them might never be built. C. Incremental Investment, Output and Employment 8.03 If we assume an average factory investment of US$1.25 million, or US$150 million in toto, and 12,000 jobs, the Lat Krabang project over 5 years of land sales and lease would foster annual investment of US$30 million and creation of 2,400 jobs from 1 to 1.5 years sooner than otherwise; also, some US$30 million of investment (20% of the total) and 3,000 jobs might never appear if the project were not to be carried out. Based on available data for factories of the types expected at Lat Krabang, capital investment of US$150 million should generate gross output of about US$200 million of which some US$60 million would be added value. In addition to direct factory employment, during the construction of the estate, an average of about 1,500 construction workers will be continuously employed to 1980. These figures, while admittedly judgmental and approximate, do lend further support to the proposed investment of US$9.9 million. D. Internal and External Economies 8.04 The concentration of industries on the estate, as opposed to the haphazard and dispersed pattern which would occur otherwise, greatly facili- tates rational planning and installation of external infrastructure (power, water, telephones, sewage, and roads). Costs will be lower since the external network will be less dispersed and time schedules for both planning and implementation can be compressed. Within the estate, there will be internal economies resulting from lower capital cost per factory because of common utilities and services. While no attempt has been made to quantify these project-induced savings in both public and private resources, they are real and significant. E. Social Benefits 8.05 The managed environment at Lat Krabang will result in a general improvement in factory building standards and working conditions, waste disposal control and greater attention to social infrastructure needs such as housing, clinics, schools and recreation facilities. In keeping with - 26 - the Greater Bangkok Plan governing land use planning to 1990, this project coupled with the earlier Bang Chan project has focused Government attention on the possibilities of a future satellite "new-town" in the area of Minburi and Lat Krabang which could serve as a model for similar developments in other regions. To the extent industries are attracted to Lat Krabang and away from Bangkok proper, the project will contribute directly to relieving the critical congestion and overloading of utilities in the city core; more importantly, as IEAT gains management and technical experience in executing this project, additional needed projects will be implemented more rapidly and the beneficial impact on the Greater Bangkok Area will become increasingly apparent over time. F. Development of Indigenous Entrepreneurship 8.06 The estate will assist Thai entrepreneurs in two ways: (i) by offering land for lease or on 4-year payment terms, medium-scale factories with limited financial resources (usually 100% Thai ownership) will be enabled to acquire factory sites more easily than otherwise, and (ii) space in standard factory buildings will be rented to smaller factories and shops (usually employing 10 to 50). IEAT also plans to cooperate closely with the Small Industries Finance Office in assisting small-scale enterprises in other ways since the environment of an industrial estate is a particularly effective matrix in which to channel assistance to all types of industries, particularly small-scale enterprise. By providing suitable factory space and utilities, the estate makes it possible for expert advice on factory layout, machinery, operations and maintenance to be rapidly implemented and effectively supervised. IX. AGREEMENTS 9.01 Agreements and assurances were obtained from the Government and TEAT as listed below: (a) Government is undertaking appropriate measures to enforce the Town and Country Planning Act of 1973 with respect to industrial zoning (para. 2.12); (b) IEAT is undertaking suitable measures to improve its operating efficiency and financial performance and will to this end present to the Bank by December 31, 1977 a detailed plan of action (para. 4.03); (c) Necessary road improvements to the Phrakhanong - Lat Krabang Road will be implemented by end-1978 (para. 5.04); (d) Suitable housing development in the general area of Lat Krabang is being implemented by NHA (para. 5.05); (e) Waste treatment facilities will be designed and operated in accordance with generally accepted standards and suitable estate rules and regulations, which among others will set gaseous and liquid effluent standards for individual estate factories, will be submitted to the Bank by June 30, 1978 for its review and approval (para. 5.10); - 27 - (f) Comprehensive rules and regulations governing the operation of the estate, including guidelines on industry suitability and factory design standards will be submitted to the Bank no later than June 30, 1978 (para. 5.10); (g) Government will cause TOT to provide by December, 1978 a 36 circuit radio telephone system connected to an automatic branch exchange with a minimum of 200 telephone lines for the estate (para. 5.11); (h) In reviewing applications for estate occupancy, IEAT will help applicants to focus on the potential benefit of labor intensive technology and give priority for estate occupancy to labor intensive industries (para. 5.17); (i) The engineering/architectural contractor, the Project Manager and the Planning and Development Advisor will be appointed no later than December 1977 (para. 5.20); (j) Government equity funds (Bht. 77.4 million) will be advanced as needed to finance land development expenditures; internal cash generation of the project will be reserved for reinvest- ment as equity in the project as needed; any additional funds required to complete the project will be provided by the Govern- ment on terms satisfactory to the Bank (para. 6.05); (k) Land prices and terms will be based on maintaining competitive- ness and insuring a minimum financial return of 10% and will be reviewed annually; necessary price revisions will be undertaken in consultation with the Bank (para. 7.04); (1) Standard lease contracts for factory building and land (both industrial and commercial) rentals will be prepared by IEAT no later than June 30, 1978 in consultation with the Bank and re- viewed annually; necessary revisions for new contracts will be undertaken in consultation with the Bank (para. 7.06); (m) IEAT has agreed that it will, during the debt service period, 1983-1998, maintain the following financial ratios for IEAT as a whole: (i) a liquidity ratio of at least 1.25:1, (ii) a debt:equity ratio of no higher than 65:35 and (iii) the minimum debt service coverage of 1.5:1 (para. 7.10). 9.02 Based on the above agreements and assurances, the project is suit- able for a Bank loan of US$4.75 million equivalent, with a 20 year maturity and 5 years grace, at 7.9% interest. Industrial Projects Department September 1977 ANNEX 1 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT EMPLOYMENT ESTIMATES - ('000) 1960 1970 1976 (No's) (No's) (No's) (X) Agriculture 11,332 13,202 14,245 78.5 Mining & Quarrying 30 87 87 0.5 Manufacturing 470 683 935 5.2 Construction 69 182 187 1.0 Electricity, Gas, Water & Sanitary Services 16 25 40 0.2 Commerce 779 876 956 5.3 Transport, Storage & Communication 166 268 352 1.9 Services 654 1,184 1,345 7.4 Unknown 234 146 - - Total Workforce 13,750 16,653 18,147 100.0 Total Population 26,392 34,397 42,957 Note: These figures should be used with caution as the 1970 census, which was published in mid-1974, apparently underestimated the popula- tion, perhaps, also the work force. The census figures differ significantly from those given in the annual labor force surveys for 1969 and 1971. In addition, sectoral employment reported in the 1969 and 1971 to 1973 surveys shows improbably large annual fluctuations. 1/ Economically active population, age 11 years and older, employed in April. Source: for 1960 and 1970, Census Report; for 1976, NESDB estimate. Industrial Projects Department January 1977 ANNEX 2 THAILAND APPRAIS'AL OF THE .A~T KRANAIG INDUSTRI AT KETATh PRINCIPAL MCRHAUDISI EZtRTS 1965 1966 1967 1968 1 1970 1971 1972 1973 2197 1975 / 1. Rtce Value (milions of Baht) 4,324 4,001 4,653 3,775 2,945 2,517 2,909 4,437 3,594 9,778 5,851 Volume ('000 of t) 1,895 1,508 1,482 1,068 1,023 1,064 1,576 2,112 8248 1,029 952 Unit value (Baht per t) z,287 2,654 3,139 3,534 2,878 2,366 1,846 2,101 4,235 9,361 6,141 2.Rubber Value (milions of Baht) 1,999 1,861 1,574 1,816 2,664 2,232 1905 1,862 4.573 5,035 3,463 Volume ('000 of t) 211 203 211 252 276 276 308 318 390 362 337 Unit value (Baht per t) 9,480 9,189 7,456 7,200 9,639 8,098 6,188 5,861 11,710 13,877 10,273 3.Maize Value (illions of Bebt) 1,004 1,577 1,431 16247 1,767 1,969 2,286 2,085 2,969 6,078 5,703 Volume ('000 of t) 831 1,262 1,146 1,558 1,545 1,448 1,873 1,844 1,386 2,301 2,153 Unit value (BDbt per t) 1,208 1,250 12249 1,057 1,144 1,360 1,220 1,131 2,142 2,639 2,648 4.Tin (metal) Value (mLlions of Baht) 399 1,291 1,820 1,510 1,631 1,618 1,569 1,664 2,035 3,097 2,247 Volume ('000 of t) 4.8 17.6 27.0 24.0 23.4 22.2 21.9 21.8 22.6 20.7 16.7 Unit value (Baht per t) 83,475 73,381 67,415 62,872 69,609 72,73? 71,738 76,190 89,762 151,028 134,842 4a.Tin (concentrates) Value (millions of Baht) 767 25 2 - - - _ _ _- Volume ('000 of t) 15.7 1.3 0.1 - Unit value (Baht per t) 48,782 19,157 18,182 - - - - - - - - 5.Tapioca Products Value (millions of Baht) 676 6844 726 772 876 1,223 1,240 1,547 2,537 3?836 4,600 volume ('000 of t) 719 9 781 889 975 1,327 1 1 i 1 311 1,836 2,395 2,387 Ulnit value (Baht per t) 940 935 929 869 898 922 1,104 1,180 1,381 1,602 1,927 6.Kanaf and Jute Value (millions of Baht) 1,102 1,614 866 674 780 719 935 1,087 1,054 845 642 Volume ('000 of t) 317 473 317 289 256 258 272 255 264 247 157 Unit value (3aht per t) 3,476 3,410 2,731 2,328 3,047 2,790 3,442 4,261 3,991 3,406 4,076 7. Sugar Value (millions of Baht) 100 82 37 - 47 94 382 1,64 1,161 3,757 5,696 Volume ('000 of t) 84 55 15 - 16 55 175 408 275 444 595 Unit value (Baht per t) 1,193 1,495 2,465 - 2,919 1,671 2,188 3,102 4,Z16 8,444 9,566 8. Shrimp Value (millions of BDht) 109 191 259 278 270 2214 247 340 803 602 888 Volume ('000 of t) 4.9 7.9 8.8 7.3 8.1 6.4 5.6 6.7 14.8 10.3 13.5 Unit value (Baht per t) 22,336 24,232 29,335 38,134 33,198 34,886 44,162 50,558 53,983 58,932 65,566 9. Teak Value (millions of Baht) 201 243 194 169 166 156 183 208 422 402 445 Volume ('000 f t) 45 49 36 29 29 29 38 40 52 35 44 Unit value(Baht per t) 4,444 4,913 5,432 5,739 5,724 5,2424 4,868 5,161 8,168 11,430 10,001 10. Tobacco Leaves Value (millions of Baht) 89 115 147 199 149 197 236 284 309 445 567 Volume ('000 of t) 6 8 9 10 9 11 13 18 17 15 17 Unit value (Baht per t) 14,720 14,594 17,169 19,181 17,464 18,266 17,936, 15,639 18,761 29,707 32,689 Value of Principal Ex- ports 10,780 11,644 11,709 10,840 11,295 10,949 11,892 14,778 19,457 33,875 30,102 Other Exports 2,161 2,455 2,457 2,839 3,427 3,823 5,389 7,713 12,769 16,371 18,485 Total Merchandise Ex- ports 12,941 14,099 14,166 13,679 14,722 14,772 17,281 22,491 32,226 50,246 48,587 AdJustments for B/P -277 -282 -358 -451 -455 -502 -583 -741 -974 - -67 Merchandise Exports. fAh 12,664 13,817 13.808 13.228 14.267 14.270 16,698 21.750 31,252 50.245 48,520 1/ Including maize groat & meal E/ - preliminary Source: Bank of Thailand Industrial Projects Department January 1977 ANNEX 3 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT TRADE INDICES AND TERMS OF TRADE (1958 2 100) Exports Imports Year Volume Unit Value Value Volume Unit Value Value Terms of Trade 1969 206.6 110.5 228.3 336.1 86.1 315.2 128.3 1970 218.8 104.7 229.1 352.2 93.1 327.9 112.5 1971 267.8 100.1 268.1 332.3 97.9 325.3 102.2 1972 332.3 105.0 348.9 362.5 103.4 374.8 101.5 1973 303.3 164.8 499.9 424.3 120.7 512.1 136.5 1974 332.3 234.9 780.6 374.5 207.6 777.5 113.2 1975 1/ 353.7 212.8 752.6 376.8 213.1 802.9 99.8 1/ Preliminary Source: Bank of Thailand Industrial Projects Department January 1977 ANNEX 4 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT NUMBER OF REGISTERED FACTORIES BY INDUSTRY GROUP AND LOCATION, DECEMBER 1975 Bangkok Other Thonburi Provinces Total (No.) () (No.) (%) (No.) (%) Consumer Goods: Food Industries 825 2.9 28,040 97.1 28,865 100.0 Beverages 24 40.7 35 59.3 59 100.0 Tobacco 16 5.6 268 94.4 284 100.0 Textiles 709 59.6 480 40.4 1,189 100.0 Footwear 68 98.5 1 1.5 69 100.0 Printing and Publishing 1,031 85.9 169 14.1 1,200 100.0 Subtotal 2,673 8.4 28,993 91.6 31,666 100.0 Intermediate Goods: Wood and Wood Products 986 44.9 1,211 55.1 2,197 100.0 Paper and Paper Products 153 82.3 33 17.7 186 100.0 Leather and Leather Products 24 20.2 95 79.8 119 100.0 Rubber and Rubber Products 255 58.9 178 41.1 433 100.0 Chemicals & Chemical Products 1,054 80.1 262 19.9 1,316 100.0 Nonmetallic Minerals 138 13.6 875 86.4 1,013 100.0 Petroleum & Petroleum Products 22 41.5 31 58.5 53 100.0 Subtotal 2,632 49.5 2,685 50.5 5,317 100.0 Capital Goods: Basic Metals 199 65.3 106 34.7 305 100.0 Metal Products 1,859 84.5 340 15.5 2,199 100.0 Machinery, except el. machinery 886 44.2 1,120 55.8 2,006 100.0 Electric Machinery & Components 518 77.2 153 22.8 671 100.0 Transport Equipment 917 58.5 651 41.5 1,568 100.0 Subtotal 4,379 64.9 2,370 35.1 6,749 100.0 Miscellaneous 328 81.4 75 18.6 403 100.0 Total 10,012 22.7 34,123 77.3 44,135 100.0 Source: Ministry of Industry Industrial Projects Department January 1977 THAILAND APPRAISAL OF THE IAT KRABANG INDUSTRIAL ESTATE PROJECT GROSS DOMESTIC PRODUCT ORIGINATING FROM MANUFACTURING AT CURRENT MARKET PRICE Growth Rate Growth Rate 1960 - 1970 1970 - 1976a/ 1960 1970 (% p.a.) 1971 1972 1973 1974 1975 1976-/ (% p.a.) Consumer Goods Food 2,309 4,967 7.5 5,271 5,028 6,655 9,374 11,216 12,952 17.2 Beverages 588 2,224 14,3 2,179 2,488 3,135 3,903 4,034 4,604 12.9 Tobacco and snuff 981 1,984 7.3 2,441 2,622 2,921 2,828 3,929 4 526 14.7 Textiles 319 1,705 18.3 2,318 3,393 4,063 4,613 4,622 5,136 20.3 Wearing apparel & made-up text.goods 536 1.148 7.1 1,644 1,789 2,451 3,086 3,577 4,353 24.8 Printing, publishing & allied ind. 266 552 7.6 621 719 956 1,449 1,982 2,552 29.1 Furnitures and fixtures 92 316 13.1 294 301 372 535 577 667 13.6 Subtotal 5,086 12.896 9.8 14,768 1634 -3 -s 574W 29,937 34,790 18.0 Intermediate Goods Wood and cork 257 597 8.8 640 729 974 1,589 1,752 2,157 23.7 Paper and paper products 18 161 24.0 195 227 215 271 238 246 7.1 Leather and leather products, not footwear 32 137 16.0 194 219 264 249 214 215 7.8 Rubber and rubber products 56 359 21.0 480 545 643 774 875 1,043 19.5 Chemicals and chemical products 491 1,509 11.6 1,599 1,755 2,016 2,521 2,743 3,200 13.7 Petroleum refining and coal 3 1,622 50.0- 2,136 2,404 2,965 4,224 4,930 5,704 23.3 Non-metallic mineral products 2dB 7,418 18.0 1.490 1.576 1,957 2,508 2,639 2,896 12.4 Subtotal 1,125 5,803 17.9 6.734 7.455 9,034 12,136 13,391 1-5.461 I77 Capital Goods Basic metal industries 27 277 27.0 327 434 752 755 745 787 19.1 Metal products, not machinery and transport equipments 51 508 26.0 602 728 1,096 1,371 1,196 1,248 16.1 Repairing of non-electrical machinery 36 429 28.0 490 559 705 893 947 1,040 15.8 Electrical machinery and supplies 39 314 23.2 339 400 475 602 663 781 16.2 Transport equipment 32a 1,078 12.7 1,095 1,384 2,270 3,052 3,585 4,434 26.2 Subtotal 482 2.606 18.8 2,853 3,505 5,298 6,673 7.136 8T.2 21.3 Miscellaneous 65 507 22.8 551 566 729 773 893 987 11.5 Total Value Added 6,759 21,814 12.4 24,908 27,864 35,614 46,372 51,358 59,529 18.2 a/ 1964 - 1970. b/ NESDB's prelimiary figures. c/ Tentative estimates by the Bank. Source: NESDB. Industrial Projects Department January 1977 ANNEX 6 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT REGISTERED MANUFACTURING FIRMS BY LOCATION, DECEMBER 1975 Rice Mill Others Total Location (No.) (Z) (No.) (No.) (Z) Greater Bangkok Area 342 1.3 11,418 62.5 11,760 26.6 Central Region 3,149 12.2 3,370 18.4 6,519 14.8 Northeast Region 12,074 46.7 1,272 7.0 13,346 30.2 Northern Region 6,306 24.4 1,190 6.5 7,496 17.0 Southern Region 3,997 15.4 1,017 5.6 5,014 11.4 25,868 100.0 18,267 100.0 44,135 100.0 Source: Factory Control Division, Ministry of Industry Industrial Projects Department january 1977 THAILAND APPRAISAL OF THE LAr KHABANG INDUSTRIAL ESTATE PROJECT EXPORTS BY lNDUSTRiAL CATEGORIES (Bht million) 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 Agricultural Products 883 1,013 829 882 933 1,091 1,303 1,521 2.181 2,544 2,296 Mungbeans and block matpe beans 11W 131 122 132 215 255 255 277 374 454 464 Soybeans 5 15 15 9 13 16 17 23 77 47 133 Sorghum 61 113 108 56 62 103 157 138 240 426 482 Kapok fibre 112 101 99 132 102 134 141 149 178 195 169 Castor seeds 66 96 83 83 86 93 124 97 272 215 103 Seedlac and stick lac 64 56 37 38 43 36 60 107 193 287 95 Hides and skins 59 72 39 47 56 52 47 102 99 70 34 Cattle 103 100 93 62 65 73 91 115 189 120 111 Other agricultural products 295 329 233 323 291 329 411 513 609 730 705 Fishery Products 37 43 27 31 51 141 242 431 781 788 1 155 Cuttle fish, fresh ) ) ) ) ) ) ) 141 274 Cuttle fish, salted in brine )37 )43 )27 )31 )51 )38 )96 68 55 )788 )1,155 Other fishery products ) ) ) ) ) 103 146 222 452 Forestry Products 92 67 53 50 62 63 77 108 25B 213 296 Mineral Products 207 315 440 341 336 441 794 673 746 1,173 788 'Hlooride 20 30 56 116 158 222 311 222 225 290 195 Tungsten 5 22 44 44 32 83 329 322 258 467 361 Iron ores and concentrates 123 124 79 52 71 8 1 - - )416 )232 Other mineral products 59 139 261 129 75 128 153 129 263 Manufacturing Products 379 463 440 573 667 782 1,371 ;.620 5,590 7.353 9,874 Pineapple, canned - - 6 29 37 55 44 51 81 280 348 Garments 1' 22 19 21 16 18 67 257 652 845 1,039 Molasses 38 3:; 38 16 32 45 86 91 312 500 533 Cements 41 17 17 19 38 83 90 218 303 650 488 Petroleum Products 40 50 78 15 38 36 132 248 366 303 230 Spinning - - - - 1 5 27 112 157 - - Silk, Fabrics 32 37 37 31 39 34 30 29 38 34 26 Textiles 1 12 14 25 29 23 64 270 1,097 786 796 Jute yarn, jute fabrics, twine cordage rope, cable of jute - 2 2 10 2 16 63 81 169 485 312 Hemp yarn and thread _ - - -. 35 19 5 - - - - loony bags 1 48 46 74 74 63 178 170 312 330 289 Iron and steel products 3 4 9 17 33 41 46 112 174 335 162 Household utensils of wood 1 2 4 5 10 18 33 72 135 - - Precious stones and jewelry 71 97 93 142 150 130 228 383 632 769 786 Other ma-.acCL-ri:g products 135 137 77 169 133 196 278 526 1,162 7,036 4,865 Others 536 554 668 962 778 1.306 1.600 2.360 3,257 4.300 4,076 Total 2,161 2,455 2,457 2,839 3,427 3,824 5,387 7,713 12,863 16,371 18,485 Source: Bank of Thailand Industrial Projects Department February 1977 THRUIL'T]) APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT PRODUCTION AND CAPACITY OF S=I,CTED MANUMACTURING RIDUSTRIES Production Prduction Ca c _1_9Z7____l96 1970 1971 1972 1 19724 1973 Sugar (1,000 metric tons) 320.0 318.1 106.6 580.0 585.6 725.0 968.0 1,105.8 675.0 988.0 :4666.0 Beer ( million litres) 14.4 39.2 36.3 32.1 33.9 43.2 44.5 61.3 100.0 100.0 100.0 Tobacco (O mro metric tons) 10.1 14.4 15.3 16.1 16.8 19.1 20.2 22.6 22.4 n.a. n.a. Ilan-made fabrics (million sq. yds.) 2.7 51.5 77.4 145.4 208.5 287.0 278.0 300.0 n.a. n.a n.a. Cotton fabrics (million sq. yds.) 227.9 344.0 365.5 450.2 481.3 566.9 511.4 540.0 610.0 645.o 71.o Cotton yarn (1,000 metric tons) 21.7 34.4 42.4 50.4 56.5 70.2 58.8 67.0 72.1 n.a. n.a. Gunny bags (million units) 40.4 44.9 52.7 63.7 81.6 91.2 110.1 107.4 84.0 150.0 150.0 Knibting (million sq. yds.) /1 - 43.8 53.0 70.4 110.5 168.7 203.7 250.0 n.a. n.a n.e. Ply-,ood (million sheets) n.a. 2.,' 3.0 3.2 3.5 3.6 3.1 3.0 10.8 10.8 10.8 Pap- (100 metric tons) n.a. 30.2 31.7 37.7 42.4 39.7 33.8 25.1 43.3 45.0 X 5 Cement (million metric tons) 1.2 2.1i 2.6 2.8 3.4 3.7 3.9 4.0 4.2 4.2 1 Glass sheets (1,000 metric tons) n.a. 29.7 31.0 24.1 424.2 46.2 45.0 38.7 59.4 62.0 62.i Galvanized iron sheets (1,000 metric tons) 65.5 94.6 85.5 97.3 103.8 86.1 72.1 83.1 192.0 192.0 192.0 Detergents (1,000 metric tons) n.a. 27.2 27.1 32.2 40.0 46.6 37.2 44.6 54.3 54.3 54.3 Chemical fertilizers (1,000 metric tons) n.a. 17.0 39.8 38.0 31.1 23.2 30.6 153.3 88.2 n.a. n.a. Acetylene (metric tons) n.e. 112.0 79.0 143.0 131.0 110.0 55.0 80.0 380.0 n.a. n.a. Sulphuric acid (1,000 metric tons) n.a. 17.7 15.0 14.3 47.3 47.1 46.9 45.2 48.0 n.a. n.a. Carbon dioxide (million kg.) n.a. 3.8 3'4 3.6 4.6 4.3 2.2 n.a. 12.4 12.4 12.4 Petroleum products (billion litres) n.a. 3.6 3.9 5.4 6.6 7.8 6.8 7.6 7.9 8.7 8.7 Mlotor vehicle assembly (1,000 units) 10.1 12.1 10.6 15.0 19.4 17.4 27.1 31.8 53.0 53-0 53.0 Motor cycle assembly (units) - - _ - 34.4 56.6 66.8 83.9 68.0 68.0 68.0 n.a. = not available. /1 Total man-made and cotton fabrics Sources: MEnistry of Industry and Bank of Thailand Industrial Projects Department January, 1977 ANNEX 9 00001 0 4,0 *0 4, N 0 4, 0 4 0' 4, .0 04, N N -.0 '.0 N '0 4, 04, 4, 0 4,0 0' NO 4, 2 2 00001 4,0 4, 000' 0 00 .4, I 4, '000 04,00 4, N 0' N 0' N 0 0 0 - 4, 44,4, -0'.00 0' 0 '0 '0 -* 0 0 '0 N 0 4,0 - 0 - 0000 00.0 0- 0.0 21 00-0 N N N - 0' 0' 0 0 R 0 0 0 0 0 N .0040N0'N.0NN 0 4, 4,. 4, 00 4, 4, N 0 N 0 0 0 0 .04, .4, 0.4,'00 ' ' ' N N N N N 4, 00 0 4 0 4 N 4, 0 4, '.0 0 .4, 0 04, - 004,0' - 0 ' 0 N 0 0 4,0 0 00 ' ' ' 0 - N N 0 4,4, Oj 'NO.0000 0.0-0 - I N - 0 N N .4, 4, 3.0 0) I ' - 0 N 4, . 0 0) 4, 00 o 0-4NN.ONO 0 0 0 4, 04, 0 0. 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'2 4, 04,0 0 000-.04,0000 0 4, 0 0 00 0000 4, 4, 00'0-.000.4, 0-0 4, 0- 4, .OO0-00ooO 0 0 0 '0 4, 4, 04,4, 0000 0 0-N 00 00' 4, 00 0 0 0 4,4,0 NW! 4, 0 0 00 0' 04, 4,00-04,04 N 00-000004,, .. 00. 0 0 0 4,004, 4,4,0- 4, 00 .0 4,0.00.04,04,4, 0 04, 0 0 0' 0000000 ' 000'004-. '.4, 00' 0 00 0 -0 ONNNNNN 4, 4, 0 '04, 0 0' 0 0' 0 0 0' 0' 0' 4, . 0.  0 4,4, 4, .01 Nj Nj '0I0'.I'0I 0' -N ANNEX 10 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT INVESTMENT POLICIES AND INCENTIVES 1. The program of industrial investment promotion during the 1960s was based on the 1962 Promotion of Industrial Investment Act which was amended in 1965 and 1968. In order, however, to achieve the more diversified objectives of the Third Development Plan (1972-76), a revised Investment Promotion Act (National Executive Council Announcement No. 227) was promulgated in October 1972. Investment guarantees and benefits were improved, and promotion was made more flexible. The revised Act applies to both foreign and domestic investors. 2. The Board of Investment (BOI), the Government agency responsible for implementing the Act, is now empowered to designate the investments eligible for promotion (Addendum 1) for which Cabinet approval was previously required. The Board also decides on the amount of investment of the individ- ual projects to be promoted and on the length of corporate tax holidays to be granted with the standard incentive package. In selecting investments for promotion, BOI takes into account the country's general development objectives including: regional development, stimulation of exports, employment creation, skill upgrading, and encouragement of local participation in joint ventures with foreign investors. Investment in agro-industries and non-manufacturing sectors is to receive greater encouragement than in the past. In order to broaden the ownership of industries, promoted enterprises now have to be organized in the form of a limited company or a cooperative. The new Act also provides a basis for technical support to private investors by BOI. 1/ I. Investment Promotion Act (N.E.C. No. 227) - Main Features A. Standard Investment Incentives 3. Promotional entities are granted certain guarantees and privileges briefly summarized as follows: (i) The Government guarantees not to establish a new state enterprise which would compete with a promoted firmj (Any existing state enterprise engaged in the same line of activity as the promoted firm would naturally continue to operate.) I/ BOI's capabilities for technical advice and assistance to investors are limited. Insofar as industries entering the Lat Krabang estate are concerned, IEAT plans to develop specialized staff to advise on factory design, pollution control, worker training and other opera- tional elements of industrial production. ANNEX 10 Page 2 (ii) The Government promises not to nationalize a promoted firm; (iii) A promoted firm is allowed to own land needed to carry out its industrial activity; 1/ (iv) A promoted firm is guaranteed that it will be free to remit foreign currency from Thailand in order to recover equity investment, repay foreign loans, remit profit and interest and discharge any obligations contracted for the use of rights and services related to its activity, unless the economic situation requires temporary restrictions on foreign exchange outflows. Even under such circumstances, the Bank of Thailand must allow each year at least 20% of the foreign capital to be repatriated (provided two years have elapsed since its introduction) and may not restrict annual remittance of profits to an amount less than 15% of the foreign paid-in capital; (v) A promoted firm may export its products, unless deemed contrary to the national security and economic interests of Thailand; (vi) The Board of Investment may authorize a promoted firm to employ qualified foreign experts or skilled workers. These foreign employees may enter Thailand with their families, irrespective of the nationality quotas imposed by the Immigration Law. The Board will actually assist the firm in obtaining the necessary permits required by the Immigration Law and Aliens Occupation Act. It may be noted that the firm is also protected, given the existing tariff structure, through the Board's policy of suspending promotional privileges to avoid creating excess capacity in an industry where there are sufficient firms to supply local needs. 4. The basic fiscal incentive that is granted to a promoted firm is the exemption from import duties and/or business tax on machinery and equip- ment. The Board of Investment may, at its discretion, also grant full exemption from corporate income tax for a period of three to eight years, 1/ Under the Land Code, aliens are prohibited from owning land in Thailand except under permission from the Minister of Interior pursuant to treaties between Thailand and their home countries. At the present time, bilateral treaty provisions relating to land ownership have all expired, and only aliens who acquired land before the expiration date of the applicable treaty may continue to own land. This privilege is, therefore, of particular interest to foreign investors as it allows a fully alien owned firm to own land outright. ANNEX 10 Page 3 beginning when income is first derived from the operations of the business. (Generally, firms are given a five-year exemption.) In addition, as a special incentive, the Board may recommend to the Ministries of Finance and Commerce that imports competing with the products of a promoted firm be prohibited or subjected to increased tariff duties. If such a recommendation is approved, firms receiving these privileges may be submitted to special compulsory price controls administered by BOI. B. Additional Special Purpose Incentives 5. To promote exports and induce new investment to locate outside the Greater Bangkok area, special benefits are available for export industries and firms locating in the designated development zones (see paras. 7 and 8 below). (a) Incentives to Encourage Exports 6. The Investment Promotion Act provides four special benefits to eligible export oriented firms. The first two grant exemption from import duties and business tax on imported raw materials and components used in the processing and assembling of products to be exported. An exemption from business tax on raw materials and other commodities supplied by a domestic producer for further processing into an export product is also available. A third incentive consists of exemption from export duty and business tax on items produced for export. Given that export taxes are imposed mainly on rice, teak, scrap iron, rubber, sugar and hides and leather, the exemption from export tax has actually little effect on exporters of industrial prod- ucts. The business tax exemption is more significant as business tax rates on distribution and processing of goods range from 1.5% to 30.0%; as a result, an export price may be lowered as much as 23% below its domestic retail price. Finally, the law provides for a small export subsidy in the form of an allowance against taxable income. This allowance is equal to 2% of each year's increase in corporate income derived from export sales in f.o.b. terms. In addition to these fiscal measures, the BOI renders tech- nical assistance to manufacturers interested in export opportunities. A few general studies identifying products suitable for export and analyzing foreign markets are available to them. This aspect of BOI's export pro- motion activities should be further enhanced in the near future by the establishment of the Board's two first trade and investment centers abroad, in Frankfurt and Nlew York, from which better market intelligence is expected to derive. (b) Investment Promotion Zones and Associated Incentives 7. The Investment Promotion Act, when introduced in November 1972, listed five "special privileges" available to investors locating their projects in regional promoted investment zones to be designated by BOI. The privileges, which BOI may grant in total or in part (depending on whichever is deemed appropriate), include: ANNEX 10 Page 4 (i) a maximum reduction of 50% of import duties and/or business taxes on raw materials for a period up to five years from the start of operations; (ii) a maximum reduction of 90% of business tax on the sale of zroducts for a period not exceeding five years from the date income is first derived from the investment; (iii) permission to double expenditures for transportation, elec- tricity and water supply to be charged against corporate taxable income for a period and under conditions left to BOIrs discretion; (iv) permission, in addition to the normal rate of depreciation of assets, to deduct from net profits (in a single year or in several years over a maximum ten-year period) an amount not exceeding 25% of the value of investment in the con- struction costs of infrastructure; and, (v) an additional reduction of 50% of corporate income taxes for 5 years starting from the expiration date of the approved standard income tax holiday. 8. In December 1973, following the recommendation presented by BOI, the Government selected ten areas to serve as "Investment Promotion Zones". A distinction is made between areas designed for general industry, agro-in- dustries and export oriented industries. The special promotional privileges just described are available for general industry in any of the development zones and to agro-industries anywhere outside the Bangkok area. In the case of export oriented industries, all 10 zones are open for investment, in addition to the Bangkok metropolis. IT. General Export Incentives 9. In addition to the special benefits offered under the Investment Promotion Act to export oriented firms, the following general export incen- tives are available to both promoted and non-promoted firms, though these are mainly of interest to the latter category since they are similar to those provided to promoted export firms. The two most important fiscal incentives for exports are: (i) the tax rebate or "credit" scheme, and (ii) the drawback or refund of import duties paid on raw materials used in export production. In addition, an exporter may discount his letters of credit at his commercial bank at a rate lower than the market rate of interest because of the special rate at which the Bank of Thailand will rediscount these notes. A. The Export Tax Rebate System 10. Under this scheme introduced in 1971, all indirect taxes on raw materials, equipment, parts, machinery, fuel and energy used in manufacturing ANNEX 10 Page 5 the export products are paid in full at the time the goods are brought into the country. These indirect taxes include excise taxes, business taxes, import duties, local municipal tax, and other levies and fees. When the imported goods incorporated in the manufacturer's export products are re- exported, the exporter applies for a refund of the corresponding taxes paid. Upon Government approval of the amount of taxes, the refund is paid to the exporter in the form of a tax credit which may be used to offset future tax payments (such as excise taxes, corporate income taxes, export duties, and business taxes excluding those levied on imports). The tax certificates issued to the approved exporter are valid for a period of three years from the date of issue. Under certain conditions, the validity period may, however, be extended for one or two additional three-year periods. 11. To obtain this tax credit, a manufacturer must submit production cost data to the Ministry of Finance (Tax Rebate Committee), where it is reviewed and the indirect tax content of the exported commodity is deter- mined. A refund formula is established that sets forth the tax rebate in terms of unit of output exported for all firms exporting this product. Each year, the Ministry of Finance establishes a budgetary ceiling for the amount of tax rebate that is to be made available to exporters. This tax credit scheme applies only to manufactured exports. Exports of minerals, agricultural and livestock products, gold, silver, precious and semi-precious stones are specifically excluded. B. The Drawback System 12. According to customs regulations, goods which are imported with the intention that they will be processed, mixed, or assembled into products for export, are liable for customs assessment at only 10% of the rate specified in the Customs Tariff Schedule, provided such raw materials are exported within 12 months from the date of obtaining Customs clearance on entry. Upon import of the raw materials, the importer has to provide securities covering this reduced amount. These may be in the form of cash, Government bonds, or a Bank guarantee. The securities are later refunded upon export of the industrial goods that embody the equivalent of the imported raw materials. Should the importer fail to export the raw materials within the stipulated 12 months period, he is required to pay the full tariff as laid down in the Customs Tariff Schedule. The 90% unpaid duty has to be paid within one month of the expiration of the time limit for export, and, if the security was not in the form of cash, an additional payment of 1% of the full rate is required for the 13th month after import, and 2% per month thereafter until all oustanding duties are paid in full. C. Discount Facilities 13. The Bank of Thailand provides an incentive to exporters through its special credit policy which lowers the cost of borrowing for exporters of manufactured goods. Under the rediscount facility, commercial banks, which lend to manufacturers of export goods, are able to rediscount the promissory ANNEX 10 Page 6 notes with the Bank of Thailand at the rate of 5%. This enables commercial banks to lend to exporting firms at 7% p.a. (180 days) which is considerably below the prevailing market rate of interest (15% p.a. for 180 day notes in June 1974). 14. Commercial banks wishing to use the Bank of Thailand's export credit rediscounting facility must apply for prior approval and assure the Bank of Thailand that the issuers of each type of promissory note are credit- worthy customers. Each bank is then assigned a line of credit based on its liquidity position, while its customers are given credit lines based mainly on their financial status and need for revolving export funds. Depending on the type of promissory note that is discounted in export transactions, the commercial banks do not accept requests for the total face value of the letters of credit, sales contract, purchase orders, or warehouse receipts but cover 70% - 90% of the promissory notes. 15. The Bank of Thailand's export credit rediscount facility finances the export of agricultural, industrial, mineral, and other goods. In the past six years, Bank of Thailand export credits for the manufacturing sector rose rapidly from Bht. 195.3 million (US$9.8 million) in 1970 to Bht. 7.3 billion (US$365 million) in 1975, so that they now account for about half of the total export credits under the Bank's rediscounting facilities. 1/ Nevertheless, export credits rediscounted by the Bank of Thailand finance only a small share of industrial exports and represents a very small fraction of total commercial bank credits. BANK OF THAILAND EXPORT CREDIT Rediscount Facilities (million baht) 1970 1971 1972 1973 1974 1975 1. Agriculture 681.6 1,313.7 1,373.6 1,494.4 3,010.5 2,783.2 2. Industry 195.3 342.3 1,141.5 1,520.1 4,212.2 7,295.3 3. Minerals 6.4 68.5 76.1 99.0 434.8 207.8 4. Petroleum Products - - 4.6 2.9 ( 124.2 102.0 5. Others 20.1 17.9 44.6 43.7 ( - Total 903.4 1,742.4 2.640.4 3,160.1 7,781.7 10,388.3 Source: Bank of Thailand. 1/ The big increase in rediscount in industrial bills is due to the revi- sion of rediscount regulations in 1975 coupled with the efforts made by various industries to reduce production expenses during this period of increasing production cost and recession. ANNEX 10 Page 7 16. While the various incentives offered have no doubt contributed to the development of exports, their actual effectiveness is difficult to determine as the increase in world market prices for Thailand's major export commodities was the main factor in the rapid growth of exports. A detailed assessment of the incentive system and its revision are being considered by the Thai authorities, including BOI and Ministry of Finance. 17. As shown in Annex 9, the number of promoted industries by BOI has shown a sharp decline in 1975. This is due mainly to the general slump in the economy in that year. However, BOI is considering measures to restore and Increase active foreign investments in the country. More liberal treat- ment of foreign investments may, therefore, be expected. Industrial Projects Department January 1977 ANNEX 10 Addendum 1 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT LIST OF INDUSTRIES ELIGIBLE FOR PROMOTION (as of 7/16/74) The list of industries eligible for promotion under the Investment Promotion Act is presented below in a summary form. Agricultural Products and Commodities 1. a. Large-scale cultivation for export or for use in or sale to industrial enterprises. b. Processing of agricultural products: natural rubber, coconut products, rattan or bamboo products, wood carving, curing and re-dyeing, and fuel from agricultural products. c. Processing and preservation of food: edible flour, instant tea and coffee, canning, fruit juice and animal feed. d. Oil production from agricultural products: vegetable oil and essences. e. Fishing and seafood processing. f. Animal husbandry and meat products. g. Animal products industry: tanning and gelatin production. h. Cultivation of mulberry trees and sericulture. i. Bee raising and bee products. Minerals, Metals and Ceramics a. Mineral ore prospecting. b. Mining or dressing of ores. c. Smelting d. Metal or metal alloy production: iron, steel and copper. ANNEX 10 Addendum 1 Page 2 e. Processing of metals and metal alloys: casting, roll- ing, galvanizing or coating, and all other methods of processing. f. Metal or metal alloy products: containers. g. Ceramic industries: materials used to produce ceramics, bone china, glazed and non-glazed mosaic tiles, glazed insulators, low temperature glazed earthenware, heat- resistant materials, sheet glass, optical glass, heat- resistant glass, crystal ware, glass bulbs and tubes, and glass wool. Chemicals and Chemical Products 3. a. Chemical production: soda ash, ammonia, nitric acid, tanin, aluminum silicate, carbon black, activated carbon, zinc cloride and destructive distillation of wood. b. Processing of petroleum: crude oil refining and grease. c. Petrochemicals: petrochemicals, plastics, plasticizers and synthetic resins. d. Pharmaceutical production: pharmaceuticals, fungicides and insecticides. e. Chemical fertilizer production. f. Paper of paper pulp production. g. Rubber products production: hard rubber products, re- claimed rubber, elastic braids and conduct. h. Paints or similar products: dyes, printing inks, pig- ments, lacquers, varnishes and wood-treating liquids. Mechanical and Electrical Equipment 4. a. Engines and component parts: combustion engines. b. Mechanical equipment including components and parts: agricultural machinery, construction machinery, mining equipment, tractors, water pumps, woodwork machinery, welding machinery, air pumps or vacuum pumps, air or gas compressors, air conditioners and bicycles. ANNEX 10 Addendum 1 Page 3 c. Electrical equipment including components and parts: generators, electric motors, transformers and electrical appliances. d. Electronic equipment or parts: radio transmitters and receivers, television transmitters, telephone equipment, electronic calculators and electronic components. e. Machine tools or parts: factory machine tools and industrial machinery. f. Tools, appliances, components: agricultural tools and equipment, blacksmith and carpenter tools, household appliances using electricity (except for refrigerators), gas (except for gas stoves) or gasoline, sewing machines, typewriters and medical instruments or equipment. g. Measuring and testing equipment and components: electric meters. h. Component parts of: vehicles, machine or engines and weaving machines. i. Ship building and repairs. Construction Materials 5. a. Stone products: marble and marble products. b. Gypsum products: gypsum board and plaster. c. Asbestos products: insulators. d. Wood processing for construction: drying, curing and preserving. e. Composite board production: pressed board made from wood waste and/or agricultural products. f. Building hardware manufacture. g. Components for pre-fabricated buildings. Textiles 6. a. Synthetic fiber (except for polyester fiber, polyester filament yarn and nylon filament yarn). ANNEX 10 Addendum 1 Page 4 b. Cotton, natural fiber or synthetic fiber products: ladies' stockings, mens' socks and gloves. c. Spinning: weaving or knitting yarn. d. Weaving or knitting: towels. e. Bleaching, dyeing and printing or finishing of yarns or textiles. Services and Miscellaneous Activities 7. a. Industrial estate (an area of not less than 500 rai). b. Export trading. c. Hotel industry. d. Cold storage or refrigerated vehicles: cold storage facilities, refrigerated trucks or ships. e. Sea transportation: international and domestic transport. f. Land transportation. g. Repair service for vehicles, machinery or engines. h. Product standard testing services. i. Warehousing. J. Low-income family housing projects. k. Hospitals. 1. The production and transportation of essential materials and common services for the production of petrochemical products. Other Products 8. a. Clocks, watches and their components. b. Cameras and lensed apparatus. c. Stationery and educational equipment: pencils and pens. d. Adhesive sheet and tape. ANNEX 10 Addendum 1 Page 5 e. Sporting equipment, musical instruments and toys. f. Medical supplies. g. Scale ice. h. Sheet abrasives. i. Packing materials. j. Plastic or plastic-coated products. k. Export industry: knitted garments, poultry and swine raising. Industrial Projects Department January 1977 ANNEX 10 Addendum 2 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT PRINCIPAL INSTITUTIONS ASSISTING INDUSTRIAL DEVELOPMENT National Economic and Social Development Board (NESDB) 1. NESDB is the national planning agency responsible for macro-economic planning and review of sector and project plans of ministries, departments and state enterprises. NESDB also participates in the formulation of fiscal policy, reviews the annual budget, gathers data on the economy and updates the national accounts. Ministry of Industry 2. The Ministry of Industry is responsible for initiating and imple- menting policy for the development of industry in general; it monitors the performance of industry, issues licenses to industrial enterprises and administers various programs of technical assistance. Within the Ministry, the Department of Industrial Promotion renders assistance specifically to the small-scale sector. Industrial Service Institute (ISI) 3. ISI's main function is to provide technical extension and advisory services to small private industrialists, and to train managers and skilled workers of small industries. As a secondary role, !SI performs economic studies and market surveys, collects and disseminates economic information, and carries out limited activity in industrial design and testing of technical products. Small Industries Finance Office (SIFO) 4. The Small Industries Finance Office of the Department of Industrial Promotion, Ministry of Industry, extends long and medium-term loans of less than Baht I million (US$50,000) to small industries in the private sector. SIFO may finance purchases of machinery and equipment, plant construction, acquisition of industrial land and working capital. It receives its funds from the Government through annual budget allocations and from the Krung Thai Bank, a Government commercial bank, in the proportion of 1 to 3. Office of the Board of Investment (BOI) 5. The Board of Investment, under the Office of the Prime Minister, is the government agency responsible for implementing the Investment Promotion ANNEX 10 Addendum 2 Page 2 Act (Annex 10). BOI is empowered to determine the list of investments eligible for promotion and decides what incentives are granted to individual projects. To promote investment, BOI also analyzes the potential for devel- opment of particular industrial sub-sectors in Thailand, and conducts surveys of foreign markets to identify products suitable for export. Industrial Finance Corporation of Thailand (IFCT) 6. IFCT is the only institution in Thailand which specializes in extending medium and long-term loans to private industrial enterprises. The minimum size of IFCT's loans in Baht 1 milliion (US$50,000); since this is SIFO's loan ceiling, IFCT refers loan applicants to SIFO if the size of the required loan is less than this amount, and SIFO reciprocates. Industrial Estates Authority of Thailand (IEAT) 7. See Annex 20. Industrial Projects Department January 1977 ANNEX 11 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT REGISTERED CAPITAL OF PROMOTED INDUSTRIES BY NATIONALITY AND TYPE OF OWNERSHIP October 26, 1960 - September, 1976 Nationality Registered Registered Total Percent of Ownership Capital Solely Capital of Joint Registered of Total Owned by One Ventures Capital 1/ Foreign Nationality (Thai-Foreign) Registered (Bht.million) (%) (Bht.million) (%) (Bht.million) (%) Capital Thailand 4,758.3 94.3 5,754.4 60.2 9,823.2 70.8 - Japan 194.2 3.8 1,335.1 13.9 1,521.0 11.0 37.7 USA 39.8 0.7 589.4 6.2 621.9 4.5 15.4 Republic of China 3.0 0.1 475.1 4.9 470.0 3.4 11.6 UK 11.0 0.2 187.1 1.9 189.3 1.4 4.7 Malaysia - - 103.9 1.0 96.9 0.7 2.4 Israel - - 80.7 0.8 80.7 0.6 2.0 Hong Kong - - 226.2 2.3 223.2 1.6 5.5 France - - 60.0 0.6 60.0 0.4 1.5 Singapore 11.1 0.2 35.3 0.3 38.4 0.3 0.9 West Germany 16.7 0.3 54.9 0.5 71.7 0.5 1.8 Netherlands - - 79.0 0.8 79.0 0.6 2.0 India 8.0 0.2 44.4 0.4 52.4 0.4 1.3 Switzerland - - 88.7 0.9 88.7 0.6 2.2 Panama - - 32.2 0.3 32.2 0.2 0.8 Philippines - - 19.2 0.2 19.2 0.1 0.5 Australia - - 22.8 0.2 22.8 0.1 0.6 Denmark - - 15.9 0.1 15.9 0.1 0.4 Portugal - - 12.6 0.1 12.6 0.1 0.3 Others - - 340.9 3.6 340.9 2.5 8.4 Total 5,042.1 100.0 9,557.8 100.0 13,860.1 100.0 100.0 1/ Total registered capital includes the capital withdrawn accompanied by the certificate withdrawal. Source: Board of Investment Industrial Projects Department January 1977 ANNEX 12 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT LIST OF BUSINESS ACTIVITIES ANNEXED TO THE ALIEN BUSINESS ACT CATEGORY A Business in Agriculture 1. Rice farming 2. Salt farming including manufacture of efflorescent salt but excluding rock salt mining. Business in Commerce 1., Internal trade concerning local agricultural products. :2. Trade An real property. Business in Services 1. Accountancy 2. Attorneyship 3. Architecture 4. Advertisement 5. Brokerage or Agency 6. Auction 7. Hair-cutting, hairdressing and beauty treatment Other Services 1. Building Construction CATEGORY B Business in Agriculture 1. Farming 2. Gardening 3. Livestock farming including cocoon raising 4. Forestry 5. Fishery ANNEX 12 Page 2 CATEGORY B Business in Industry and Handicrafts 1. Rice milling 2. Manufacture of flour from rice and field crops 3. Manufacture of sugar 4. Manufacture of beverage, with and without alcoholic blending 5. Manufacture of ice 6. Manufacture of drugs 7. Cold storage 8. Wood processing 9. Manufacture of products from gold, silver, niello and bronze 10. Manufacture and casting of Buddha images and manufacture of alms bowls 11. Manufacture of wood carving 12. Manufacture of lacquerware 13. Manufacture of all types of matches 14. Manufacture of lime, cement or cement by-products 15. Stone blasting or crushing 16. Manufacture of plywood, wood veneer, chipboard or hardboard 17. Manufacture of garment or shoes for export 18. Printing press 19. Newspaper publication 20. Silk combing, silk weaving or printing of pattern on silk material 21. Manufacture of products from silk, silk yarn or silk cocoons Business in Commerce 1. Retailing of all products except those specified in Category C 2. Sale of mining products except those specified in Category C 3. Sale of all types of food and beverage except those specified in Category C 4. Sale of antiques, heirlooms or works of art CATEGORY C Business in Commerce 1. Wholesale of all types of products within the country except those specified in Category A 2. Export of all types of products 3. Retail of machines, engines and tools 4. Sale of food and beverage for the promotion of tourism ANNEX 12 Page 3 Business in Industry and Handicrafts 1. Manufacture of animal feeds 2. Extraction of vegetable oil 3. Manufacture of embroidering and knitting products including weaving, dyeing and pattern printing 4. Manufacture of glass containers including light bulbs 5. Manufacture of crockery 6. Manufacture of writing and printing paper 7. Rock salt mining 8. Mining Business in Services 1. Except for those specified in Category A and Category B Other Business 1. Other construction businesses except those specified in Category A. Industrial Projects Department January 1977 ANNEX 13 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT REGIONAL DEVELOPMENT PLANS 1. One of the objectives of the Third Plan is to "raise the income and living standard of the rural people in various regions." To help achieve this goal, considerable efforts including administrative decentralization have been devoted over the last several years to regional planning for the Northeast, the North and the South. Some knowledge and experience has been gained in the regional planning process, but to date, little has directly resulted from the first two of these plans (para. 2 and 3 below). Development Plan for the Northeast 2. With the help of technical assistance from USAID, the National Economic and Social Development Board (NESDB) prepared a development plan for the Northeast. This plan, however, was general in nature and did not trans- late priorities into clearly identified and formulated projects. It also had only limited support from the various ministries and departments that would have had to implement it. Hence, although the plan was "incorporated" in the Third Plan, it has had little effect on subsequent ministerial actions and policy decisions. Northern Regional Planning Study 3. Only the first phase of the regional planning study for the north, carried out by a team of consultants financed by UNDP, has been completed. The remaining phases have been delayed by inadequate contractor performance and inaction and then reorganization at NESDB. However, steps are now being taken by NESDB to complete the planning study for the Fourth National Devel- opment Plan in 1977-1981. Southern Regional Planning Study 4. In part because of what has been learned from the earlier regional planning exercises, the Southern Regional Planning Study, which was carried out for NESDB by consultants financed under a technical assistance project of the U.K.'s Overseas Development Administration, is expected to be more successful in implementation. The study has focused on sectoral reviews leading to identification and preparation of specific projects. Steps have also been taken to involve the operating departments, which must implement proposed projects, in their formulation and preparation. Consequently, this study is likely to lead to the implementation of a significant number of projects many with external financing. ANNEX 13 Page 2 5. With respect to industrial estate development, the study has iden- tified the Hat Yai/Singkhla area as a possible site for the setting up of an industrial estate and/or an export processing zone. The study team in- tends to carry out a prefeasibility study following completion of its sectoral reviews. Industrial Projects Department January 1977 ANNEX 14 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE DEVELOPMENT PLAN FOR THE GREATER BANGKOK AREA 1. The Greater Bangkok area covers 3,157 square kilometers and com- prises three Changwats (provinces): Phra Nakorn/Thonburi (the Metropoitan Municipality), Nonthaburi and Samut Prakan. The roughly rectangular area stretches about 65 kilometers east to west, and 50 kilometers north to south. Slightly west of the center line, the Chao Phraya River winds through the area until it reaches the Gulf of Thailand. 2. While peripheral parts of the area are still thinly populated, the urban center manifests all of the ills of over-congestion - traffic paralysis, utility breakdowns, pollution, inadequate and unsanitary housing. The population of 4.3 million (1976) is expected to expand to a minimum of 7 million, and may surpass 9 million with high migration from outlying regions, by 1990. This will double the population density in the area, which is already one of the highest in the world. What is more important, the labor force is expected to increase from 1.5 million in 1971 to 4.1 million in 1990. 3. To achieve efficient area development, the central and local governments have been proposing various plans. The first of such plans, the "Greater Bangkok Plan, 1990" was prepared with the assistance of American consultants and published in 1960. However, this plan was not officially approved and only served as a more or less informal working guide for Gov- ernment ministries. The Government revised the Plan in 1971, taking into account changes since 1960, and again revised it in 1973. This 1973 plan and the 1975 Town and Country Planning Act have been approved by the Cabinet. 4. While the 1973 plan covers the entire Greater Bangkok Area, it foresees staged implementation starting with limited sections needing urgent attention. The first stage plan was for the period from 1972 to 1976 and covers about two-thirds of the area. It includes housing and infrastructure programs with government subsidies for priority needs. Regarding industry, the Plan's basic policy is to distribute it together with residential, com- mercial and social facilities to satellite centers removed from the urban core. One major component of this program is to establish an industrial development pole in Samut Prakan to provide 300,000 job opportunities. Four smaller industrial development poles are planned for Cholburi, Samuthsakorn, Klong Dan and Nakorn Pathom which in total should eventually provide 132,000 jobs. The Lat Krabang estate and others being prepared are fully consistent with the guidelines of the Plan. Both Bang Chan and Lat Krabang fall within one of the designated industrial zones. Industrial Projects Department January 1977 ANNEX 15 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT NATIONAL INDUSTRIAL ESTATES DEVELOPMENT PROGRAM 1. Thailand has been developing a detailed long-range national industrial estates plan. The outline of such a plan is gradually taking shape as a result of (i) the findings and recommendations of a Japanese study team which conducted in late 1969 an extensive search for potential industrial estate sites throughout the Kingdom; 1/ (ii) the regional planning exercises cur- rently underway (Annex 13); and (iii) the tentative development program drafted by the Industrial Estates Authority of Thailand (IEAT). Japanese Study on Industrial Estates Development 2. The principal recommendations of the study were that, while estates should initially be introduced in the Central Region where most industrial investment was choosing to locate, opportunities existed also to develop industrial estates inland, in the northern and northeastern areas as well as in coastal areas in the South. 3. Using such criteria as topographic conditions, transportation facilities, available labor force, energy, markets and telecommunications the study team selected 17 sites throughout the country as suitable locations for industrial development, and, therefore, the establishment of industrial estates. The Changwat (province) of Phra Nakhon, which includes Bangkok, was ranked in first position, with urban areas centering around the capital city within a 100 km. radius (Ayutthaya and Saraburi to the north, Nakhon Pathom and Samut Sakorn to the west) in second to fifth positions. Areas ranked sixth to tenth are within the 300 km. zone; they include Kohn Kaen in the northeast, Chol Buri in the southeast, and Phitsanuloke to the north. Among the other sites selected, but located still further away from Bangkok were Chieng Mai and Lampang in the north, Undon Thani and Ubon Ratchathani in the northeast, and Surat Thani and Songkhla in the south. 4. More precise attention was given by the study team to site selection for industrial estates in the Greater Bangkok area and to the prospects for industrial development along the southeastern coast (Leam Chabang, Sriracha). For the Bangkok area, two types of location were selected: (i) sites comparable to Minburi, wihin a 30 km. radius from the city center, to serve as fixation points and growth poles for the development of light industries, and (ii) areas along the Chao Phraya river and on the seaside, in Samutprakan changwat, such as the ones defined in the Greater Bangkok Master Plan - 1990, to accommodate more 1/ Report on "Industrial Estates Development in Thailand" prepared for the Overseas Technical Cooperation Agency, Government of Japan, March 1970. ANNEX 15 Page 2 specifically export industries. The southeastern coast- line was considered suitable for locating heavy indus- tries (steel, petrochemicals), should a second port be developed in this area. IEAT's Industrial Estate Development Program 5. IEAT has proposed to NESDB a tentative program for industrial estates development to be included in the Fourth Plan (1977-1981). In general terms, the pattern of estates development is similar: first priority is given to the Greater Bangkok area in addition to the Lat Krabang project and special attention is paid to the southern region where industrial viability is considered to exist. The following is the list of projects the IEAT wishes to carry out either alone or on joint venture basis during the Fourth Plan (1977-1981). List of Industrial Estates Proposed Greater Bangkok Area Priority Rating 1. Lat Krabang 1 2. Samutsakorn 1 3. Klong Dan 1 4. Nakhon Pathom 3 5. Nontaburi 3 6. Thanyaburi 3 7. Navanakorn* 1 8. Bang Poo* 1 9. Samutprakarn EPZ* 3 Southeastern Coast 10. Cholburi 2 South 11. Songkhla 1 Northeast 12. Udon Thani or Khonkhaen 2 North 13. Lampang 2 * Joint Venture Source: IEAT ANNEX 15 Page 3 6. This list is very ambitious; IEAT is still a young organization (Annex 20) and such a program would exceed present and near-term resource availability. It is believed, therefore, that a maximum of six projects might be started, market conditions and resource availability permitting, over the period 1977-81. At least four of these estates would be located within a 50 km. radius from Bangkok (Lat Krabang, Nava Nakorn, Bang Poo and the Samut Prakarn EPZ), and perhaps one each in Chol Buri Province and an outlying region. Industrial Projects Department January 1977 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT PROJECTED GROWTH OF INDUSTRY AND LAND REQUIREMENTS 1972 - 1981 (Amounts in billion baht, 1962 constant prices) Total Total 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1972-1976 1977-1981 <------- actual ---------a<---- estimated -----K------------------------ projected ----------------- 1. Whole Kingdom Investment (amount) - 2/ 5.4 6.6 7.8 8.3 8.9 10.1 11.5 12.6 13.7 15.0 37.0 62.9 Of which promoted investment- 1.1 2.8 4.9 3.1 2.2 5.0 5.8 6.3 6.9 7.5 14.1 31.5 Number of Pr oted Projects Im- plemented 3 47 58 108 69 71 91 105 115 125 136 353 572 2. Bangkok Area Investment4/ 3.6 4.4 5.2 5.5 5.9 6.7 7.7 8.4 9.1 10.0 24.6 41.9 of which promoted investment - 0.7 1.9 3.3 2.1 1.5 3.3 3.8 4.2 4.5 5.0 9.5 20.8 Number of Prmoted Projects Im- plemented-6 31 39 73 47 48 61 70 77 83 91 238 379 Total Number of Projects Imple- mented7/ 159 90 115 123 148 122 140 154 166 182 635 764 Average Land Required per Project 0.9 1.0 1.0 1.0 1.1 1.1 1.1 1.2 1.2 1.2 - _ (ha) Land Required (ha) 143 90 115 123 163 134 154 185 199 218 634 890 of which for promoted project 28 39 73 47 53 67 77 92 100 109 240 445 I/ As projected by Bank staff; actual figures for 1972, 1973, and 1974; estimated for 1975 and 1976 and projected thereafter; the model used assumes an overall growth of 9.4% per annum over the period. 2/ Figures for 1972, 1973, and 1974 are estimated by (1) factoring the investments approved in the previous year (Annex 9 ) by the realization rate assumed equal to the ratio of projects starting operations in the current year to promotion certificates granted in the previous year, and (2) deflating this figure to constant price. The projection from 1977 and onward is based on that the half of total investment will be promoted investment. 3/ Actual number of projects starting operations in 1972, 1973, and 1974 (Annex 10); from 1975 and thereafter estimated from the amount of promoted investment, assuming an average investment of B 55 million (US$2.75 million). 4/ Estimated assuming two thirds of the investment in the whole Kingdom located in the Bangkok area. 5/ Assuming the same ratio of promoted/total investment as for the whole Kingdom. WI Estimated assuming.the same ratio of promoted/total investment as for the whole Kingdom. 7/ Assuming the ratio of total number of projects implemented/number of promoted projects is equal to the corresponding ratio for investment amounts (for the purpose of > estimating land requirements only). x Industrial Projects Department January 1977 ANNEX 17 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT INDUSTRIAL LAID AVAILABILITY - GREAER BANaKOK AREA Y A. Zoned Industrial Land Amount Available Occupied at end Land after Locations Area 1976(est). 2/ 1977 est.) Changwat Amiphur Site (ha) (3tha) Phra Nakhon Minburi Bang Chan/Lat 655 23 505 Krabang (Phra Khanong East Phetburi Road 540 5 515 (Phra Khanong Klong Toey 1,255 90 126 Bangkok Municipality (Bang Khen Razma V Rd. & Patiphat Rd. 195 30 135 (Dusit Riverside 495 85 75. (Yannava Riverside 1,350 55 _ Thonburi Rat Burana ) 2 Riverside 195 80 39 Bang Khun Thian Thonburi (Thonburi Riverside 210 80 41 Municipality (Klong San Samutorakan Phra Pradang Riverside-West Bank 510 10 480 Riverside-East Bank 2,245 40 1,34s5 Nuang Samutprakan Riverside-West Bank 1,195 10 1,075 South of CLty 450 35 290 Seaside - Hua Lashu Thong 360 35 235 Toia 9,655 50 4,850 B. Planned Industrial Estates Amount Amount avail- Land Locationsa Occupied at end able up to available Changwat Aephur Site Area of 1976 1981 after 1981 Pjra Nakhon Xinburi Bang Chan -5 55 - Lat Krabang 116 - 116 Pathum Thani Pathum Thani Navs Nakorn 113 - 113 Samutprakan NMaang Samut- Bang Poo 160 80 80 prakan Klong Dan 26 - - 26 Total 470 55 309 106 & Includes the Bang Chan and Lat Krabang estates. G Oiven present land use, only small plots available. 2/ This area is earmarked for warehouses only. t/ Bang Poo Phase I. Total planned area is 1280 ha. / As defined in the Master Plan prepared by the Department of Town and Country Planning, Ministry of Interior, with, in addition, the Minburi estate area. 2J Present land occupation rate for the industrial zones was estimated using maps assembled by the Planning Division of the Bangkok Metropolitan City Municipality. Industrial Projects Departmnt Jan. 1977 ANNEX 18 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT Price Comparison with Nava Nakorn Industrial Estate Project 1. The Nava Nakorn Industrial Estate forms part of the "Nava Nakorn New Town" which is being developed by a private company, including as share- holder and executing agency, the Commonwealth Development Corporation of the United Kingdom. 2. The site is located about 50 km north of Bangkok covering some 800 ha, including 113 ha reserved for the estate. Both standard factory build- ings and developed sites will be offered for sale or lease. In November 1976, building rental rates were not available, but prices for developed plots were quoted at Bht 400,000 per rai (1976 prices). A comparison of prices per rai, in current Bht, between Nava Nakorn and Lat Krabang estates, is given below: Nava Nakorn Lat Krabang Sales Sales on Year Against Cash 4-year Terms (Bht '000/rai) /I (Bht '000/rai) /2 (Bht '000/rai) /2 1976 400 1977 424 1978 449 _ _ 1979 476 250 313 1980 505 275 345 1981 535 303 379 1982 567 333 417 /1 Assumed inflation rate of 6% p.a. /2 Assumed increase of 10% p.a. for starting contracts. As can be seen from above Lat Krabang's prices are competitive both for sales against cash as well as for sales on 4-year terms. Industrial Projects Department February 1977 ANNEX 19 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT NATIONAL EXECUTIVE COUNCIL ANNOUNCEMENT NO. 339, DECEMBER 13, 1972 NEC Decree no. 339 authorized the creation of an autonomous govern- ment agency to develop, own and manage industrial estates and export process- ing zones in Thailand. The more important articles governing organization and operations have been translated and are given below: Preamble The various problems connected with location of factory sites and the free choice of private enterprises to set up industrial plants have caused nuisances to the public and pollution of water with the emitted waste, noise, dust, odors, and fumes. All these factors have contributed to a nonuniformity in expansion of industries and the authorities concerned have thus been un- able to render efficient services to them. As the suitability of establish- ment of Export Processing Zones can also be justified by the need to promote utilization of local labor, the Chairman of the National Executive Board hereby decrees that: Article 2. (Objectives of IEAT) An Industrial Estate Authority shall be established under the name of "Industrial Estate Authority of Thailand", abbreviated as IEAT, and shall be a juristic person, having the following objectives: (1) Procurement of lands suitable for establishing industrial estates. (2) Improvement of land under (1) including building roads, factory waste water disposal facilities or other necessary installations as well as providing other facilities and services to enable the smooth working of industrial operations. (3) Provision for hire, hire-pprchase, and sale of immovable properties or movable properties in industrial estates. (4) Entering into joint investments with private enterprises in establishing industrial estates. (5) Undertaking other related business connected with or for the benefit of industrial estates. Article 5. (Activities of IEAT) Industrial Estate Authority of Thailand is empowered to undertake activities in accordance with the objectives laid down in Article 2 including the following: ANNEX 19 Page 2 (1) Surveying, planning, designing, and constructing all facilities in industrial estates. (2) Designation of categories and sizes of industrial ac- tivities to be permitted in industrial estates. (3) Permitting and supervising construction of factories, installation of machinery, and registration of factories in the industrial estates. (4) Inspection of the living condition of workers in the industrial estates. (5) Control of activities of industrial operators in the industrial estate in accordance with established rules and regulations. (6) Inspection and certification of kinds and quantities of raw materials or products in the case where issuance of certificates is necessary, or in the case of bringing them into or taking out of the industrial estates. (7) Acquiring and giving out loans or investment. (8) Issuing bonds or other instruments of investment. (9) Prevention, inspection and control of tax evasions in the industrial estates. (10) Providing necessary services and facilities to industrial operators in industrial estate. Article 6. (Capital of IEAT) Capital fund of Industrial Estate Authority of Thailand shall comprise: (1) Assets as per Article 4. (Note - the properties of the Bang Chan Estate). (2) Money or other properties received from government or from other persons. Article 9. (Board) There shall be a Board called the Board of Industrial Estate Authority of Thailand consisting of the Chairman and other members not exceeding ten including the Director of Industrial Estate Authority of Thailand who is ex-officio mmember of the Board. The cabinet shall nominate the Chairman and other board members with the exception of the ex-officio Board member. ANNEX 19 Page 3 Article 10. (Power of Board) The Board is empowered to lay down policy and supervise generally the activities of Industrial Estate Authority of Thailand. Article 11. (Policy of rental fee) In fixing of rental fees for immovable or movable properties and for service charges for other facilities, the indus- trial estate shall base its fees on obtaining sufficient income for: (1) Provision as necessary to cover its operating costs, including interest, depreciation, bonuses, pensions, welfare funds or others for the welfare of workers and their families (2) Repayment of loans (3) Provision of reserve funds as necessary for expansion of the activities and investment. Article 13. (Disposition of profit) The annual income, after deducting all the expenses, shall be remitted to the Government treasury. However, if the income is not sufficient to cover the expenses, with the exception of reserve fund as per Article 11 (3) and if IEAT cannot obtain income from other sources, the Government will pay whatever amounts are necessary to cover the deficit. Article 41. (Types of industrial estate) There are two types of industrial estates, namely, (1) General Industrial Estate, (2) Export Processing Zone. Establishment of General Industrial Estates shall be announced in the Government Gazette. Establishment of Export Processing Zones in any area shall be made effective by Royal Decrees to be issued together with maps illustrating the areas of the Export Processing Zones. Article 42. (Committee) In each industrial estate there shall be a Committee in charge as described under: (1) For the General Industrial Estate, the Committee shall comprise the Director of Industrial Estate Authority of Thailand as Chairman, representatives of the Ministry of Commerce, Ministry of Industry, Office of the Board of Investment, Local Municipality, or Public Works Department... (2) For the Export Procesing Zone, the Committee shall com- prise the Director of Industrial Estate Authority of Thailand as Chairman, representatives of the Ministry of ANNEX 19 Page 4 Commerce, Ministry of Industry, Revenue Department, Excise Department, Customs Department, Police Department, Office of the Board of Investment, Local Municipality or Public Works Department... The Industrial Estate Committee shall discharge duties as may be assigned by the Board and act in an advisory capacity to the Board in regard to the operation of that Industrial Estate, having other authority and functions as prescribed in this NEC Announcement. Article 45. (Ownership of Land) An industrial operator, who is a limited company registered in Thailand, may be granted permission to hold the owner- ship of land in the General Industrial Estate to enable him to operate the industry in area of the size as may be considered appropriate by the Board, even if this has exceeded the total permitted in other laws. Article 48. (Activities in the Export Processing Zones) The industrial activities permitted in the Export Processing Zones are production, mixing, or assembling of products including packing, storage, transportation, loading and unloading, sale or distribution of aforementioned products, as well as necessary repairs of same within the area of the Export Processing Zone, and shall be limited to the following: (1) business which is a wholly new investment. (2) business which will not affect or damage other local industries which have been already exporting their products. (3) raw materials, semi-finished products, or finished products of the types of which inspection and control can be made easily. (4) the business shall not be hazardous to physical or per- sonal health of people. The category of industrial activity which is permitted in an Export Processing Zone shall be in accordance with the ministerial reg- ulations. Article 49. (Privileges on Export Processing Zone) License to operate a business in the Export Processing Zone entitles one to the privilege of exemption of import duty and/or business tax for the machinery, or raw materials necessary for use in the licensed business, and the machinery as are necessary for use in construction of factory must be approved by the Board, but the machinery or raw materials must not be of similar types which can be produced in the country, whose price is near to that of imported product inclusive of import duty with quality comparable to those produced in foreign countries, and whose supply is adequately available locally. The import of such machinery or raw materials into the Kingdom shall observe the conditions laid down by the Board. ANNEX 19 Page 5 it. case the licensee operating a business in the Export Process- ing Zcne pu cchases machinery which is locally made, per Paragraph 1, the produce:r c:: seller of such goods shall be exempted from payment of duty on such gcof sc Are_`t:e 50. (Further Privileges) In case the licensee operating a business in the Export Processing Zone is unable to comply with the conditions laid down by the Board governing the import of machinery or raw materials into the Kingdom, cr exemption of import duty, and/or business tax on machinery or raw materials, the Board is empowered to make amendment to those conditions if the Board considers it appropriate. And, if the machinery has already been brought iLL, conforming in every respect with the law on Customs, the Board may make any change to those conditions to come retroactive to the date of its import, regardless of whether the date of import being before or after the date of enforcement of this Announcement. Article 5i. (Sales to Local Markets) The industrial operator in the Export Processing Zone is prohibited from bringing the products out of the said zone for sale in the country unless prior permission is granted by the Board. Application for license, permission and fees thereon shall observe the principles, procedures and conditions as will be prescribed by the min- isterial regulations. In case of bringing the products out of the Export Processing Zone for sale in the country with the permission granted by the Board, per Para- graph 1, the industrial operator shall pay duty on the products and produce in accordance with the Customs Act and the law on Customs Tariff. Article 52. (Permission of Foreign Workers) Under the provisions of the Immigration Act which does not mention otherwise, the industrial operator in the Export Processing Zone will be granted permission to bring alien skilled workers or experts into Thailand, whose number and period of stay in the country shall be determined by the Board -- including their spouses and other dependents although they may exceed the immigration quota and period of stay in the country under the provisions of the Immigration Act. Article 53. (Remittance) The industrial operator in the Export Processing Zone has the right to take or remit money out of the country in foreign currency, provided that such money represents capital brought into the Kingdom by the industrial operator, foreign loan, profit derived from such investment capital, interest on foreign loan or obligations assumed by the industrial operator under contract relating to the exercise of rights and services in the Export Processing Zone; the exemption being that during any period when the nation's balance of payments may be such as to require reservation of foreign currencies in a reasonable amount, the industrial operator may be restricted on a temporary basis to take or remit such money for the said purpose, but he will not, however, be subjected to limiting foreign capital ANNEX 19 Page 6 out of this country at lower rate ti-an 20/o of total annually if the remittance is made after two years from date of bringing in such capital. On the other hand, the industrial operator will not be restricted in the remittance of profit out of the country at a lower rate than 15% of paid-up capital which is brought in from a foreign country. Proposed Amendments to the IEAT Establishing Decree 1/ IEAT has proposed amendments to the Establishing Decree (NEC Announcement No. 339) for the purpose of achieving more efficient operations in fulfilling its assigned objectives, as follows: 1. The IEAT is empowered to expropriate suitable industrial estate land when purchasing negotiation cannot be reached. 2. Private sector can invest on establishing the general industrial estate. In such cases, by the IEAT approval, the IEAT is empowered to declare the aforesaid industrial estate establishment in Government C-azette if the estab- lishing process is properly carried out. 3. Limitations on types and categories of industries ad- missible in EPZ (as indicated in Article 48 of the NEC Announcement No. 339) is cancelled. The IEAT Board is empowered to consider, case by case, on the types and categories of industries as suitable. 4. The IEAT is empowered to be exempted from taxes, duties, fees related to land, assets, buildings and any structures in the industrial estate. 5. For the operation of the general industrial estates, all taxes, duties and fees which entrepreneurs have to pay to Bangkok Municipality, local muniicipality and Department of Industrial Works including fees for license issuance and industrial operation will be collectively paid to the IEAT and become the IEAT revenue. 6. Although other laws and regulations have been effective, the IEAT is empowered on construction control, license issuance for industrial establishment, operation and production to provide such facilities to entreprenurs in the general industrial estate and EPZ including the entreneurs who are granted promotion incentives from BOI. 1/ These proposed amendments were tentatively translated from Thai to English by IEAT staff. ANNEX 19 Page 7 7. The IEAT Board is authorized to use the enforcement of regulations of Ministry of Industry in facilitating procedures of granting tax exemption and cutting down red tape in import and export, by means of all procedures being carried out as "one-stop-service". Consequently, the provision of these facilities shall induce foreign investment in the general industrial estate and EPZ. 8. The IEAT Board is empowered to appoint, by approval of the Minister of Industry, members of sub-committees attached to the general industrial estates and EPZ. What these proposed amendments imply is, aside from the benefits which may accrue to the IEAT, a realignment of administrative responsibilities in such a manner that the IEAT would be able to provide more services and incentives than at present for entreprenurs within the estate. If these amendments are approved by the relevant Government agencies, the IEAT would provide a "one-stop service" to entrepreneurs entering the estate, instead of their having to contact numerous agencies individually. Industrial Projects Department January 1977 ANNEX 20 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT INDUSTRIAL ESTATE AUTHORITY OF THAILAND - ORGANIZATION MANAGEMENT AND OPERATIONS Historical Background 1. The Industrial Estate Authority of Thailand (IEAT) was created by the National Executive Council Decree No. 339, dated December 13, 1972. 1/ Since the early 1960s, the Government has stressed industrial estate devel- opment as a means of accelerating the rate of industrialization and to help solve the problem of urban congestion. To this end, the Department of In- dustrial Works, Ministry of Industry, was assigned program responsibility; but progress was disappointing. After years of planning and preparation, the first estate was started at Bang Chan in 1968 and substantially com- pleted in 1972. Despite very attractive land prices, occupancy of the estate was slow; by the end of 1972, only 11 factory plots (of 35) had been leased. It became apparent that the Department of Industrial Works, while technically competent, had been unable to provide the promotional stimulus needed. It was decided that an autonomous business-oriented agency to man- age the Bang Chan project as well as to plan and execute additional projects was needed and this decision led to the creation of IEAT. Functions 2. IEAT's area of responsibility encompasses the development of in- dustrial estates and Export Processing Zones (EPZs) throughout the nation. It is empowered to undertake feasibiity studies, acquire and develop land, invest in infrastructure, sell or lease the developed land, and provide various services to the occupant industries (see Annex 19). Thus, for estate occupants IEAT has been authorized to issue industrial licenses based on the Factory Act and can also grant exemptions of import duties and business taxes for companies admitted into EPZs. IEAT can participate in joint ventures with public and private sector groups and two such par- ticipations are being prepared at Bangpoo and Nava Nakorn. As the respon- sible central industrial estate authority, IEAT is also preparing a long range master plan to submit to NESDB, i.e. a national plan for industrial estate and EPZ development. 1/ Selected excerpts are given in Annex 19. ANNEX 20 Page 2 Management and Organization 3. The Cabinet appoints the Chairman and other members of the gov- erning Board of the Industrial Estate Authority of Thailand, a body whose functions are to establish policy and generally supervise operations similar to the powers and responsibilities of a Western corporate Board of Directors. Members of the current Board are listed in Addendum 1. 4. The Board in turn appoints the Director General who is the top ex- ecutive in charge of day-to-day operations. On August 1, 1973, Mr. Prakaipet Indhusophon, a well-known Thai businessmen, became IEAT's first Director General. In June 1974, however, he was appointed Deputy Minister of Indus- tries and Mr. Soonthorn Nivasnanda, Director of Administration Department, carried the title of Acting Director General until February 21, 1976, when the Board appointed Mr. Chamroon Vajrabhaya, former Director General of the Telephone Organization of Thailand, as Director General. 5. The IEAT Organization has been revised by the new Director General and effective July 1, 1976, four functional departments headed by directors and the Office of the Director General have been organized and staffed. (See Addendum 2 - Organization Chart) with functions as listed below: Office of the Director - General - Policy planning and expediting, inspection, evaluation and public relations. Technical and Projects - Programming and planning; feasi- bility studies; engineering design; economic evaluations. Operations - supervision of estate construction, operations and maintenance. (Most of the staff in this department are located on site at Bang Chan. As more estates are built, the number of field operating staffs will increase and only a few liaison people will be at IEAT Headquarters). Financial - maintenance of books and accounts; financial planning and budgets. (Future liaison with the Bank on loan disbursements will be through this department). Administration - general office administration; liaison with other government agencies; factory licensing and inspections; sales contract supervision; legal. 6. The important function missing is "Sales and Marketing". Up to now, sales promotion has been handled (apparently quite successfully, since th4e available land at Bang Chan has been fully committed) by IEAT's top man- agement on an ad hoc basis. Future sales of the larger parcel of land at Lat Krabang and other estates, however, will require a better organized program of national and international promotion. According to the current organi- zation chart, IEAT has a marketing section in its Technical and Projects Department. Promotional activity has to be more intensive; in the future, a separate department may be justified. ANNEX 20 Page 3 7. Staff now total 95 and IEAT had intended to increase this up to 165 during 1977; but after consultation with the appraisal mission, it has been agreed that IEAT will keep its staff to the minimum required and will transfer some of the present staff to operation of the Lat Krabang estate. As IEAT pays about 40% more than civil service standards for professionals and 25% more for other staff, it has been able to attract relatively high caliber people. Operations 8. Since taking over Bang Chan on October 1, 1973, IEAT has achieved full occupancy of the estate. The table below shows the rate of land leasing since 1970: Bang Chan - Land Leases, 1970-1977 Calendar Year Firms Committed 1970 5 1971 1 1972 5 1973 8 1974 16 1975 1976 4 Total 39 Details of manufacturing companies and their status are shown in Annex 21, Addendum 1. 9. Besides operating Bang Chan, IEAT has moved ahead in preparing new projects as shown by the work done to date listed below: (a) Completion of the Lat Krabang feasibility study; (b) Completion of a prefeasibility study covering a proposed 8,000 rai joint venture with private interests at Bang Poo (fee paid by the private interests); (c) Negotiation of a minority stock interest in a privately financed new town project at Nava Nakorn; technical assist- ance will be provided by IEAT for the industrial estate component of the project; (d) Technical assistance to the linistry of Industry in carrying out a prefeasibility study of an agro-industrial estate proposed at Cholburi; ANNEX 20 Page 4 (e) Preparation of a prefeasibility study on the Industrial Estate in the South with proposed funding from ADB. Studies, engineering drawings and cost estimates related to the work listed above and examined by the mission were found to be of adequate quality generally and it was concluded that IEAT has already achieved a substantial capability to plan and carry out pre-investment studies. With appropriate technical support during the next 2 to 3 years, the staff should achieve a level of competence such that only occasional outside assistance would be needed thereafter, limited in all likelihood, to design of power systems, sewerage and other specialized items of infrastructure. In other words, all planning and pre-investment studies including full feasibility analyses would in the future be carried out entirely by IEAT staff while detailed engineering design would require additional outside technical help. 10. IEAT's project execution capabilities, on the other hand, are still untested. It can be assumed that the experience gained in building Bang Chan between 1968 and 1972 has been carried over to some extent from the Department of Industrial Works to IEAT. This accumulated know-how (files and personnel) will be useful in executing the current project since, even though Lat Krabang is a larger project, the differences are quantitative rather than qualitative, i.e., no new project implementation problems are involved. The qualifications and experience of the Directors and the work already performed by them and the staff technicians encourage the judgment that, with the technical assistance recommended under terms of the project, IEAT will be able to execute the project in a suitable manner. Finance 11. Government budget support which is obligatory under Decree No. 339 will be needed for some years to come to cover: (i) operating deficits, and (ii) equity investments in new projects. Eventually, it is hoped that cash flow from financially profitable estate operations and EPZs will provide an operating surplus and this in turn will permit IEAT to raise additional capital directly through bond issues and other debt instruments. At present, Government policy envisages treating treasury funds advanced to IEAT as sunk costs with no payback obligation, and additionally, allowing IEAT to retain all profits for purposes of reinvestment in further development. 12. The Balance Sheet, Income Statement and Cash flow for FY 1974, 1975 and 1976 are given in Addendum 3. FY 1974 corresponds to the IEAT's first operating year starting with the takeover of Bang Chan from the Department of Industrial Works. With this transfer, IEAT acquired Bht 28.5 million in fixed assets (mainly) and 11.9 million in liabilities (of which the major part is a long-term loan from the Alcohol Department with payback still to be negotiated) plus Bht 16.6 million in equity. The Office of the National Audit Council had certified in September 1974 that IEAT had Bht 12.5 million in liabilities plus Bht 18.4 million in equity. ANNEX 20 t)age 5 13. An operating loss of Bht 1.7 million was recorded in FY 1974, Bht 2.8 million in 1975 and another Bht. 3.7 million in FY 1976. The pri- mary reason is the low revenue derived from Bang Chan leases (see Annex 21). IEAT is examining the possiblities of putting Bang Chan on a sounder finan- cial basis through increases in rental rates and service charges, applicable to the new contracts, and negotiation of revised rentals and service charges on existing contracts. Offering to sell land to occupants (who are all leas- ing) at the current market price less some reasonable discount to make the transaction attractive should be tested because it would, by converting IEAT's major asset (developed land) into cash, provide a substantial cash flow for investment in other projects. Industrial Projects Department January 1977 ANNEX 20 Addendum 1 INDUSTRIAL ESTATE AUTHORITY OF THAILAND List of Board Members (June 1976) Chairman: Mr. Praphas Chakkaphak Director-General Department of Industrial Promotion Ministry of Industry Members: Mr. Charoen Panthong Deputy Under Secretary of State Ministry of Interior Mr. Staporn Kavitanon Director, Economic Projects Division National Economic and Social Development Board (NESDB) Mrs. Valai Juangpanich Director, Divison 2 Budget Bureau Mr. Kamchorn Sathirakul Director, Assessment Division Customs Department Ministry of Finance Mr. Danai Tulalumpa Commercial Councellor The Office of Under Secretary of State Ministry of Commerce Mr. Chira Panupong Deputy Director General Board of Investment (BOI) Mr. Vira Susangkarakan Deputy Director-General Industrial Works Department Ministry of Industry Mr. Chumsai Hasdin Hons. Secretary - General Association of Thai Industries Mr. Narong Sri Sa-an Director & Senior Vice President Thai Farmers Bank Thai Bankers Association Mr. Chamroon Vajarabhaya Director General Industrial Estate Authority of Thailand (IEAT) Industrial Projects Department January 1977 INDUSTRIAL ESTATE AUTHORITY OF THAILAND ORGANIZATION CHART (as of October 1976) LBOARD DIRECTOR GENERAl_ LDEPUTY DIRECTOR_) _ rv~~~~~- -: .I _ _=. _ _- E1 OFFICE OF TECHNICAL A FINANCE ADMINISTRAITION OPERATIONS DIRECTOR_GENERAL PROJECTS DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT Director General 1 Director 1 Director 1 Director 1 Director (acting)l Deputy Director 1 Ehgineer Accountants 7 Lawyers 2 Ehgineers 6 Architect 1 - Civil 1 Officials 3 Officials 4 Technicians 3 Economist 1 - Sanitary 1 Lawyer 1 Technicians 2 Ptaintenance Officials 2 Architects 6 Secretary 1 Secretary 1 workers 10 Secretary 1 Eccnomi-sts 3 Drivers 6 Security guards 2 Clerk 1 Officials 2 Clerks 6 Workers Technicians 7 Surveyors 4 Secretary 1 Total 8 Total 26 Total 13 Total 22 Total 26 Grand Total 95 Industrial Projects Department January 1977 ANNEX 20 Addendum 3 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAI ESTATE PROJECT INDUSTRIAL ESTATE AUTHORITY OF THAILAND SUMMARIZED BALANCE SHEET (Bht '000) OCT.1 SEPT.30 SEPT.30 SEPT.30 Assets 1973 1974 1975 1976 Current Assets Cash 214 2,350 4,610 21,208 Receivables 45 79 242 551 Total 259 2,429 4,852 21,759 Fixed Assets Land and Roads 22,330 22,294 21,736 46,024 Buildings 1,719 2,027 2,056 2,070 Water Supply 1,292 1,246 1,500 2,958 Electric System 1,629 1,466 1,303 1,140 Vehicles ( 450 620 825 Others 1,265 977 944 1,058 Total 28,235 28,460 28,159 54,075 TOTAL ASSETS 28,494 30,889 33,011 75,834 Liabilities and Equity Current Liabilities Short-term Debt 421 827 856 982 Accrued Payable 25 61 104 333 Total 446 888 960 1,315 Long-Term Liabilities Loan from Alcohol Dept. 10,687 10,687 10,687 10,687 Provident Fund - 112 491 1,011 Miscellaneous Payable 809 809 - - Total 11,496 11,608 11,178 11,698 Equity Government Contributions 16,552 20,107 25,435 71,135 Cumulative Loss - (1,714) (4,562) (8,314) Total 16,552 18,393 20,873 62,821 TOTAL LIABILITIES AND EQUITIES 28,494 30,889 33,011 75,834 Current Ratio 0.58 2.73 5.05 17.84 Long Term D/E Ratio 29:71 39:61 35:65 16:84 ANNEX 20 Addendum 3 Page 2 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT INDUSTRIAL ESTATE AUTHORITY OF THAILAND INCOME STATEMENT FOR FY1974-76 (Bht '000) FY1974 FY1975 FY1976 Revenue Land Rent 1,150 1,437 1,555 Maintenance Charge 64 80 88 Sales of Water 146 218 491 Miscellaneous 235 322 644 Total 1,595 2,057 2,778 Expenses Cost of Staff 1,502 2,900 3,945 Administration Expense 750 842 1,210 Maintenance Repair 126 117 31 Depreciation 931 1,046 1,344 Total 3,309 4,905 6,530 (Loss) (1,714) (2,848) (3,752) Cumulative (1,714) (4,562) (8,314) ANNEX 20 Addendum 3 Page 3 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT INDUSTRIAL ESTATE AUTHORITY OF THAILAND CASH FLOW STATEMENT 1974-1976 (Bht '000) FY1974 FY1975 FY1976 Sources of Funds Net Revenue (1,714) (2,848) (3,752) Depreciation 931 1,046 1,344 Government Contribution 3,555 5,328 45,700 Iv ease in Credits 520 (521) 566 Total 3,292 3,005 43,858 Uses of Funds Irivestment in Facilities at Estate 1,156 745 27,260 Total 1,156 745 27,260 Cash Surplus 2,136 2,260 16,598 Cumulative Cash Surplus 2,350 4,610 21,208 Industrial Projects Department January 1977 ANNEX 20 Addendum 4 TATIJL A APPRAISE, OF THE LAT CKABANG INDUSTRIA ESTATE PROJECT IMPLICATIONS OF IEAT CENTRAL OFFICE OFERLATING COSTS 1. Since IEAT's inception in 1973, its capital and most of operating expenses have been provided by budgetary appropriaticn from the Government. Presently, IEAT central office expenses exceed its revenue, as discussed in paras, 11 to 13 of Annex 20. The total expenses of Bht. 4.7 million in 1976 were covered by (1) budgetary appropriation of Bht. 3.8 million, (2) revenues of Bht. 0.6 million from rendering architectural and engineering services for other Governmental agencies and private enterprises, and (3) appropriation of Bht. 0.3 million from the Bang Chan estate, xwhich is the balance between its revenue of Bht. 2.1 million and operating expenses of Bht. 1.8 million. The contribution of the Bang Chan estate to the central office overheads is, thus, 6.5%. 2. For the Lat Krabang project, it is estimated that approximately 10% of the central office costs could reasonably be charged to the estate opera- tion. An optimal share of contribution by each estate to the overhead of central office, which is mostly engaged in planning future estates, will have to be studied and decided later. For financial projections, however, a 10% share contribution by the project after full occupancy is considered reasonable. This is the percentage which the project can afford without causing itself financial difficulty. Industrial Projects Department February 1977 THAILAND APPRAISAL OF THE LAT KRABANC INWSTR1AL ESTATE PROJECT INC(iE PROJECTION OF IEAT (Current Bht '000) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1997 1998 REVENUES (i) Head offic;- 644 683 724 767 813 862 913 968 1026 1088 2188 2319 (ii) Bang Chan- 2/ 2134 2262 2397 2542 2694 2856 3027 3209 3401 3605 7254 7689 (iii) Lat Krabang- - - - 33597 37576 49197 59100 40670 41309 41109 82719 87682 TOTAL 2778 2945 3121 36906 41083 52915 63040 44847 45736 45802 92161 97690 COSTS (I) operatinlg Coiyst (1) Nead tfficc: C 31 4667 4947 5244 5558 5892 6245 6620 7017 7438 7885 15865 16817 (Less) Contri. by Bang Chan-r ( 330) ( 347) ( 364) ( 382) ( 401) ( 421) ( 442) ( 464) ( 487) ( 512) ( 1010) ( 1070) (Less) ContTi. by Lat lrabang- 4 ( - (- - ) ( 478) ( 526) ( 578) ( 636) ( 700) ( 770) ( 847) ( 1705) ( 1807) Sub-Total 4337 4600 4880 4698 4965 5246 5542 5853 6181 6526 13150 13940 (ii) Bang Chan- 849 909 970 1036 1119 1209 1305 1409 1522 1638 3433 3639 (iii) Lat Kraban-/ 4723 3991 8891 9297 11772 11547 12288 13047 26253 27828 TOTAL (i+ii+iii) 5186 5509 10573 9725 14975 15752 18619 18809 19991 21211 42836 45407 (2) Interest & Co.itment Fee (iii) Lat Krabang- - - 1546 4555 7093 7527 7600 7472 6960 6448 304 - (3) Depreciation 7/ (t) Head Office- 387 387 387 387 387 387 387 387 387 387 387 387 (ii) Bang Chew'- 957 957 957 957 957 957 957 957 957 957 957 957 (iii) Lat Krabang6 - - - - 1930 3860 3860 3860 3860 3860 3860 3860 Sub-Total 1344 1344 1344 1344 3274 5204 5204 5204 5204 5204 5204 5204 (4) Costs of Land g2ld (iii) Lat Krabang_ - - - 20700 15525 15525 14490 - - - - Total Costs (1) to (4) 6530 6853 13463 36324 40867 44008 45913 31485 32155 32863 48344 50611 Surplus (Deficit) (3752) (3908) (10342) 582 216 8907 17127 13362 13581 12939 43817 47079 Cumulative Surplus (Deficit) (8314) (12222) (22564) (21982) (21766) (12859) 4268 17630 31211 44150 382665 429744 I/Assuming 67. p.a. increase throughout -/ From Annex 26 3/'Assuming 5% p.a. increase 5/Assuming l0h p.a increase in 1979-85 and 67. p.a. increase thereafter 61Assuming ri. p.a. increase in 1976-79 and 8% p.a. increase thereafter 6-From Annex 28 7/Assuming constant throughout >c 1! THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT CASH FLOW PROJECTION OF IEAT (Current Bht '000) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 -- 1997 1998 Sources of Funds (1) Net Income ( 3752) ( 3908) (10342) 582 216 8907 17127 13362 13581 12939 43817 47079 (2) Depreciation 1344 1344 1344 1344 3274 5204 5204 5204 5204 5204 5204 5204 (3) Costs ot Land -old - - - 20700 15525 15525 14490 - - - - - (4) Government Contribution 45700 21500 20000 10900 - - - - - - - - (5) Increase in IBRD Loan - - 23000 60000 10000 2000 - - - - _ _ (6) Decrease in Mortgage Receivables - - - (5008) (2888) (2261) (1183) 4528 3340 2311 - - (7) Increase in CreditsI1 566 1496 1020 1102 1190 1286 1388 1499 1619 1748 4404 4756 Total Sources 43858 20432 35022 89620 27317 30661 37026 24593 23744 22202 53425 57039 Uses of Funds Repayment of IBRD Loan - - - - - - - 3200 6400 6400 6400 2200 Investment in Bang Chan and others-/ 2260 1300 1300 1300 1300 1300 1300 1300 1300 1300 1300 1300 Investment in Lat Krabang 25000 10947 45620 90219 26292 - - - - - - - Total Uses 27260 12247 46920 91519 27592 1300 1300 4500 7700 7700 7700 3500 Cash Surplus (Deficit) 16598 8185 (11898) (1899) (275) 29361 35726 20093 16044 14502 45725 53539 Cumulative Cash Surplus (Deficit) 21208 29393 17495 15596 15321 44682 80408 100501 116545 131047 476615 530154 Debt Service - - - - - - - 10672 13360 12848 6704 2200 Debt Service Coverage - - - - - - 2.88 2.20 2.12 7.82 25.33 l/Derived from (i) Increase in Provident Fund plus (ii) Accrued Payables minus (iii) Increase in Receivables, where (i) and (ii) are assumed to increase at 87. p.a. and no increase in (iii). 2/Assumed Bht 1.3 million throughout. m l THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROFORMA BALANCE SHEET OF IEAT 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985-----1997 1998 Assets Current Assets Cash 21,208 29,393 17,495 15,596 15,321 44,682 80,408 100,501 116,545 131,047--476,615 530,154 Receivables 551 - - 5,008 7,896 10,157 11,340 6,812 3,472 1,161-- - - Total 21,759 29,393 17,495 20,064 23,217 54,839 91,748 107,313 120,017 132,208--476,615 530,154 Fixed Assets Head Office & Bangchan 29,075 29,031 28,987 28,943 28,899 28,855 28,811 28,767 28,723 28,679-- 28,151 28,107 Lat Krabang 25,000 35,947 81,567 151.086 159,923 140,528 122,188 118,328 114,468 110,608-- 64,288 60,428 Total 54,075 64,978 110,554 180,029 188,822 169,393 150,999 147,095 143,191 139,287-- 92,439 88,535 Total Assets 75,834 94,371 128,049 200,633 212,039 224,232 2427478 271,495--569,054 618,689 Liabilities and Equity Current Liabilities Accrued Payables 1,315 1,698 2,112 2,559 3,042 3,564 4,127 4,735 5,392 6,101-- 20,644 22,574 Debt Maturing - IBRD - - - - - - 3,200 6,400 6,400 6,400 2,200 - Total 1,315 1,698 2,112 2,559 3,042 3,564 7,327 11,135 11,792 12,501-- 22,844 22,574 L/T Liabilities IBRD Loan - - 23,000 83,000 93,000 95,000 91,800 85,400 79,000 72,600-- - - Others 1/ 11.698 12.260 12,866 13,521 14.228 14,992 15,817 16,708 17,670 18,709-- 40,010 42,836 Total 11,698 12,260 35,866 96,521 107,228 109,992 107,617 102,108 96,670 91,309-- 40,010 42,836 Total Liabilities 13,013 13,958 37,978 99,080 110,270 113,556 114,944 113,243 108,462 103,810-- 62,854 65,410 Equity Government Contribution 71,135 92,635 112,635 123,535 123,535 123,535 123,535 123,535 123,535 123,535--123,535 123,535 Retained Earnings (8.314) (12.222) (22,564) (21.982) (21,766) (12,839) 4.268 17,630 31,211 44,150--382.665 429.744 Total Equity 62,821 80,413 90,071 101,553 101,769 110,676 127,803 141,165 154,746 167,685--506,200 553,279 Total Liabilities and Equity 75.834 94,371 128,049 200.633 212,039 224,232 242.747 254,408 263,208 271,495--569,054 618,689 Current Ratio 16.54 17.31 8.28 8.05 7.63 15.38 12.52 9.64 10.18 10.57-- 20.86 23.88 L/T Debt/Equity Ratio 16:84 13:87 28:72 49:51 51:49 50:50 46:54 42:58 38:62 35:65 7:93 7:93 1/ Comprises Loan from Alcohol Department and Provident Fund Industrial Projects Department August 1977 ANNEX 21 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT BANG CHAN ESTATE 1. In 1968, the Government decided to establish the first industrial estate in Thailand in Bang Chan, some 30 kilometers east of Bangkok. Depart- ment of Industrial Works, Ministry of Industry, developed the estate at a total cost of Bht. 76.8 million (US$4.8 million), which was broken down to Bht. 46.2 million for land and Bht. 30.6 million for infrastructure cost. The estate has 687 rais (110 hectares) of land, of which 50% have been developed for net industrial plots, 14% was reserved for residential area, and 36% is absorbed by the administration complex, roads, and service facilities. 2. Uncoordinated development of infrastructure caused problems in the early stages of development. While power and water supply were made available from the beginning, upgrading of a local dirt road to a provin- cial highway connecting the estate to Bangkok was not completed until recently. The telephone exchange was completed only in mid-1974. Within the estate, raising the level of paddy field for industrial sites was left to individual lessees, and this delayed land utilization as well as raised costs unnecessarily. 3. Land title has been transferred to the IEAT in 1975, and the lease contract has been revised. Formerly, rental was set at a very low level: Bht 3,600/rai/year for the first five years of the contract, regardless of when the contract was signed; Bht 7,200 for the following five years; Bht 9,000 for the following ten years; and Bht 12,000 for the last 10 years. The companies entering into lease contracts after 1975 are charged at the following rates: Bht 7,200/rai/year during January, 1975 to December, 1979; Bht 9,000 during January 1980 to December 1989; and Bht 12,000 during January, 1990 to December 1999. 4. By July 1976, 39 companies had entered into lease contracts with the list and details in Addendum 1. Of these, 26 companies have already started production, 7 are under construction, 5 are in preparation and one is temporarily closed but soon will resume operations. Total employment is 1,799 and the total registered capital amounts to Bht 171.2 million (US$8.5 million). Actual amounts of investments are much larger than this registered capital (see Addendum 1 for details). Industrial Projects Department January 1977 ANNEX 21 Addendum 1 THAILAND APPRUISAL OF THE LAT ELA4AUG INDUSTRIAL SSTATS PROJECT LIST OF CONPANIES IN BANG COAN (JULY 0976)~ Company duo ease ~ aployee- Registered Product LeasedY Employe-2/ Capital 3/ Area (m2) (Baht million) A. Companies in Operation 1. Scocem (Thailand) Co., Ltd. Cement paints 8,000 13 0.5 2. Sigma Paints (Thailand) Co., Ltd. Emulsion paints 8,o00 34 6 3. Bang Chsn General Assembly Co., Ltd. Motor vehicle assembly 83,200 268 16 4. Chain Thai Factory Ltd.Part. Motorcycle spare parts 6,400 93 1 5. Wan Thai Foods Industry Co., Ltd. Instant noodles 18,6400 3 6. Material Industrial Development Co., Ltd. Construction materials 20,640 119 3 7. Toyo Ink (Thailand) Co., Ltd. Offset ink chemical 5,140 20 1.8 8. Daily Foods Co., Ltd. Butter, condensed milk 9,716 9 2 9. Izumi Piston Manufacturing Co., Ltd. Machine spare parts 25,600 34 3 lO.Spun Concrete Pile Co., Ltd. Construction materials 8,540 64 2 ll.Oriental Electric Industry Co., Ltd. Electric equipment 16,480 - 6 12.Bangkok Electric Ehterprise Co., Ltd. Electric household supplies 16,576 50 3 13.Thai Electronics Industry Co., Ltd. Radio component 14,380 45 5 l4.Ying Charoen Paints Industry Co., Ltd. Emulsion paints 4,800 15 1 15S.akosol & Mazda Industry Co., Ltd. Motor vehicle assembly 75,o60 95 6o 16.5aeng Thip Co., Ltd. Construction materials 16,08O 34 3 17.Saha Union Co., Ltd. Pressure adhesive tape, elastic webbing, rubber thread, polyester buttons, lace, embroidery thread, acrylic knitting yarn, garments, spare parts, mathinery service 47,324 500 30 18.Siam Insulator Co., Ltd. Ceramics 27,260 52 5 19.Bangkok Glass Industries Fire - proved glass 3,248 40 5 20.Uawithya Industry Co., Ltd. Airconditioner 3,2)48 30 2 21.Architectural Research and Efngineering Co. Construction materials 10,72b 65 o.4 22.Thai Bamboo and Wood Products Co., Ltd. Household equipment 9,600 80 0.5 23 .Aruna Pencils 3,200 - 1 24.Auto Parts Industries Co., Ltd. Metal processing and equip. 22,496 60 5 25.Sinthu Construction Ltd. Part. Construction materials 8,000 12 1 26.Thai Yong Hong Electric Factory Ltd. Part. Fan motors and electric appli.5,588 18 - B. Companies Temporary Closed 27.Indhanon Co., Ltd. Wooden packaging container h,6co - I C. Companies Under Construction 28.Thai Pure Drinks Co., Ltd. (Thai Namthip) Wooden and paper packaging containers 5,4h0 - 1 29.Adhesive (Thailand) Co., Ltd. Glue 8,000 - - 30.Southeast Asia Pharmaceutical Co., Ltd. Medicine 6,316 - - 31.trnited Supplies and Ehgineering Electric Appliances 3,200 - - 32.Hawai Thai Export Co., Ltd. . Rattan furniture 10,672 - - 33.Mr. Boonliti Lertparnit Rope and plastic tape 2,552 - - 34.The Saeng Uthai Engineering Co., Ltd. Stainless steel ware 8,600 - - D. Companies entered into leasing contract but not yet started construction. 35.Univeraal Abrasive Co., Ltd. Sand paper 3,200 _ 2 36.Mbdern Packaging Co., Ltd. Packaging 8,176 _ 1 37.Uniliver (Thailand) Co., Ltd. Machinery and concrete products 13,ooO - - 38.0soth Co., Ltd. Medicine 3,248 - - 3,.Tarinsiti Ltd. Part Thread 4,800 - - Total 559,748 1,799 171.2 1/ Data collected on March 25, 1976. 2/ Data collected on July 31, 1976. 3/ Actual amounts of investments are much larger than "registered capital". Industrial Projects Department Marcb 1977 ANNEX 22 MHAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT PROJECT DESCRIPTION General 1. In March 1977 IEAT evaluated proposals submitted by nine Engineering/Architectural Consulting Firms for the design and super- vision of the Lat Krabang Industrial Estate Project. The successful firm 1/ has since prepared a capital cost estimate based on their pro- posed estate design and layout. A comparison between Bank's estimate and the updated consultant's one is given in Addendum 1. Land Fill and Bunding 2. In the vicinity of Bangkok, developing paddy land into indus- trial sites requires either raising the average level of terrain by up to 1.5 meters (adding, fill, compacting and levelling) or the less costly alternative of building dikes (bunds) around the boundary and installing pumps for removal of sewage and excess rainfall. IEAT and the consultants have opted for the second alternative, and it is proposed to have bunds all around the estate with the exception of an area of about 10 rai along the estate entrance road that will be filled and compacted to the required level. The total cost of land fill, bunding, fencing and pumping stations has been estimated at Bht 8.89 million. Roads and Drainage 3. From the proposed layout the total cost of roads including parking areas has been estimated by the consultants at Bht 38.8 million (Bht 28.0 m for roads and Bht 10.78 m for the drainage system). The asphalt surface roads (some 10 km long and about 8.5 m wide) will be built according to the Department of Highways specifications and will include sidewalks. Water Supply 4. The consultants' estimate for this project component is the sama as IEAT's since it differs only in scale from the installations at Ban7 Chan which were completed in 1973. The same aquifer supplying 1/ Consisting of a -roup of engineering and architectural consultants, namely: (i) Dr. lachet Ranjanavanit and Associates (ii) Metric Company Ltd. (iii) Thai D~CI Company Ltd. (iv) Santhaja and Associates Company Ltd. in association with (v) De Leuw, Cather International Inc. of USA. ANNEX 22 Page 2 Bang Chan is known to exist at Lat Krabang at about the same depth (150-200 meter). Daily consumption is projected to be;at full occupancy, 6,000 m3 average and 10,000 m3 peak load (overtime shifts, summer conditions) or 2e6 million gallons maximum. This is reasonable and is composed of: (i) sanitary demand of 400,000 gallons/day (40 gallons/day x 10,000 workers in full scheme), (ii) the balance of 2.2 million gallons/day for industrial use of some 200 primarily clean, light mechanical industries and the demand of various commercial activities. Two phases of development are planned: Phase I Estimated Cost (Bht. mill.) -Two deep wells, 150-200 meters deep, capacity 200 m3/ha through 12" casing .... 1.3 -Ground level reservoir, concrete capacity 500 m3 ........................ 1.0 -One primary pump and one standby, building and controls .................... 0.5 -One concrete elevated storage tank, capacity 200-300 m3, 25 meter elevation .. 3.0 -Distribution system - pipe, fittings, and valves (including hydrants) installed .... 4.7 Subtotal 10.5 Phase II -Two deep wells, 200 m3/ha through 12" casing ................................... 1.3 -Groundwater reservoir, concrete, capacity 5000 m3 ......................... 1.0 -One primary pump and one standby, building and controls .................... 0.5 -One concrete elevated storage tank, capacity 200-300 m3, 25 meter elevation .. 3.0 Subtotal 5.8 Total 16.3 ANNEX 22 Page 3 Power 5. From the estate layout, MEA has estimated that total distribution lines required will be approximately 6 kilometers and maximum demand 25 MW. The required transformer has already been installed by MEA some 5 km west of the project site; it will be connected to the estate internal overhead distri- bution network for power and street lighting, the cost of which is estimated at Bht 4.8 million. IEAT will advance funds to MEA for the installation and MEA has agreed to refund this amount to IEAT in the early eighties. IEAT's view is that this expenditure be treated as operating cost and not as capital cost. Sewage and Garbage Disposal 6. From the consultants' estate layout (Map 17963 ) there will be only one central sewage treatment plant that will handle the combined sanitary and industrial wastes. The plant will consist of an aerated lagoon, evaporation ponds and pumping stations. A more sophisticated plant, (activated sludge principle) estimated at Bht 15.0 million has nevertheless been included in the cost estimate. The real need for the more sophisticated installation will be evaluated by the consultants during the course of final design. Until the design has been completed, only a rough global estimate is possible. Even then, since the final mix of factories - light mechanical, chemical, clean, semi-pollutive, pollutive, and so forth - will be unknown for some years, the design will have to be based on judgment to some extent. At this stage of the project, it was assumed that 90% of the water demand would reach the treatment plant or 9,000 m /day during peak load periods. Pretreatment at the points of origin will be required under estate operating rules for aggressive wastes containing acids, alkalis, solvents, oils and greases, and dissolved and suspended inorganic or organic material to ensure that the waste entering the central treatment plant meets the design standards of the facility. The discharge from the treatment plant will also be controlled. It is too early to fix these acceptable limits, but generally recognized standards do exist. (For example, BOD - biological oxygen demand - is usually held to a limit of 2,000 ppm.). 7. Given a maximum flow of 9,000 m /day and assuming averge types of industrial and sanitary waste (aggressive wastes having been neutralized or eliminated within plant limits), subject to final design, the consultants have the following global estimate in current (1977) prices. Estimated Cost (Bht. million) - Aerated lagoon, polishing ponds, pumping station ... 5.0 - Treatment plant unit .............................. 0S.O - Piping, installed ........ ......................... 3.0 - Incinerator ....................................... 2.0 Total 25.0 ANNEX 22 Page 4 Buildings 8. It is propoied to have one administration block of some 1,000 2 , one workshop of 500 m , twelve to fifteen housing units totalling 1,700 mi2, for IEAT's employees and five standard factory buildings of about 2,160 m, each, four of which will be constructed in the EPZ and one in the general industrial estate zone. The standard factory huildings will be planned for partitioning into units ranging from 400-800 m according to the require- ments of individual factories. Estimated cost of the buildings is detailed below: Item Estimated Cost (Bht. '000) (1) Standard Factory Buildings -5 x 2,160 m or 10,800 mi with reinforced concrete columns, block walling, steel trusses with asbestos cement corrugated roofing @ Bht. 2,400/mi . ........................ . 25,920 (2) Administration Building -1,000 m under reinforced concrete slab with block walling 2 @ Bht. 2,800/m .......................... 2,800 (3) Workshop 2 -500 m , reinforced concrete columns, with cinder block walling, steel trusses with asbestos cement corrugated roofing @ Bht. 200/m 2 .................................. 1,000 (4) Housing -12 to 15 units totalling 2,500 mi2 reinforced concrete columns, block walling under slab @ Bht 2,500/m ............................ 6,250 Sub total (2), (3), (4) 10,050 ANNEX 22 Page 5 Telecommunications 9. At full occupancy the estate and its occupants will need 500 telephone lines. The telephone organization of Thailand (TOT) and, IEAT have agreed to the utilization of a 36 circuit radio telephone system con- nected o an automatic branch exchange with a minimum of 200 lines. The cost of this system will be shared by both TOT and IEAT. IEAT's share has been estimated at Bht. 4.2 million. TOT expects no difficulty in having 120 telephone extensions functioning by end 1978, and the remaining extensions as and when they are required. Industrial Projects Department August 1977 ANNEX 22 Addendum I THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT Comparison Between Bank's & Consultants Estimates (Bht million) Banks' Consultants Remarks Land 25.0 25.0 Land Fill & Bunding 6.0 8.9 Consultants' figure includes fence, gates, and site equipment Road & Drainage 32.0 38.8 Includes asphalted parking areas Water Supply 16.3 16.3 Power Supply 14.6 -- Cost will be met by M.E.A. Sewage Disposal 34.4 25.0 One treatment plant instead of two Telecommunications 15.0 4.2 TOT has agreed to bear additional costs Fences & Gates 5.0 -- Included in cost of land fill and bunding Buildings 28.9 36.0 Housing provided for IEAT's employees Eng./Arch. Services 12.2 6.0 Reduced Consultants' fees as per contract signed Tech. Asst. & Training 7.8 2.0 Technical assistance provided by UNIDO Contingencies 61.3 35.9 Reduction in capital cost and shorter construction schedule Interest during Construction 31.6 -- Considered as an operating cost Total 290.3 198.1 Industrial Project Department August 1977 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT1! PROJECT EXECUTION SCHEDULE 19_77 1978 1979 _ __ _ lst 2nd 3rd 4th Ist 2nd 3rd 4th lst 2nd 3rd 4th 1st 2nd3rd 4th Land Survey Selection of Engineering Contractor Detailed Engineering - - - | Civil Works, Tenders, Phase 1 Construction, Phase 1 - - - - - - Civil Works, Tenders, Phase 2 11 Construction, Phase 2 ______ 1/ Detailed scheduling, using PERT or 'critical path" techniques, will be prepared during engineering design and should be ready by the last quarter of 1977 Industrial Projects Department August 1977 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT PROJECT COST ESTIMATE (Bht. '000) (Bht. '000) (US$ '000) 1976 1977 1978 1979 1980 Local Foreign Total Local Foreign Total % 1. Land Acquisition 25,000 - - - - 25,000 - 25,000 1,250 - 1,250 15.4 2. Land Development - Land Fill, Bunding, Fence & Site Eqpt. - 8,890 - - - 6,667 2,223 8,890 333 112 445 5.5 - Road & Drainage - - 28,350 10,430 - 25,207 13,573 38,780 1,260 679 1,939 23.9 - Water Supply - - 5,450 7,750 3,140 4,902 11,438 16,340 245 572 817 10.1 - Sewage Disposal - - - 19,880 5,120 5,000 20,000 25,000 250 1,000 1,250 15.4 - Telecommunication - - 2,100 2,100 - 840 3,360 4,200 42 168 210 2.6 3. Building - Standard Factory Buildings - - - 19,100 6,800 12,537 13,363 25,900 627 668 1,295 16.0 - Administrative Building, Housing & Workshop - - 6,590 3,460 4,838 5,212 10,050 242 261 503 6.2 4. Engineering/Architectural Service - 800 1,250 3,500 450 4,000 2,000 6,000 200 100 300 3.7 5. Technical Assistance and Training - - 1,250 750 - 600 1,400 2,000 30 70 100 1.2 Base Cost 25,000 9,690 38,400 70,100 18,970 89,591 72,569 162,160 4,479 3,629 8,108 100.0 6. Contingencies - Physical (107.) - 969 3,840 7,010 1,897 6,459 7,257 13,716 323 363 686 8.4 - Price (Average 8%) - 288 3,380 13,109 5,425 10,455 11,747 22,202 523 587 1,110 13.7 Installed Cost 25,000 10,947 45,620 90,219 26,292 106,505 91,573 198,078 5,325 4,579 9,904 122.1 Percentage (%) 12.6 5.5 23.0 45.5 13.4 53.8 46.2 100.0 53.8 46.2 100.0 Industrial Projects Department August 1977 ANNEX 25 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT PR73.TCTED AVERAGE Q ERLY DISBURSEMENT OF IBRD LOAN Disbursement Cumulative IBED Fiscal Year Bht. '000 US$ '000 US$ '000 1978 1/ 5,750 287.50 575 1979 10,375 518.75 2,650 1980 8,750 437.50 4,400 1981 1,750 87.50 4,750 1/ Last two quarters only. Indust:ia' Projects Department August 1977 ANNEX 26 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE REVENUE PROJECTIONS (Current Bht'000) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985---- 1997 1998 A. Revenue from Land Sale (320 rai) Land for Industry 1. Sales against Cash (256 rai) - Rai of Land Sold - - - 80 60 60 56 - - Price per Rail- _ _ 250 275 303 333 - _ _ Revenue _ _ 20,000 16,500 18,180 18,648 2. Sales on 4-year Term (64 rai) - Rai of Land Sod - - - 20 15 15 14 - - - Price per Rai-I -/ - 313 345 379 417 - - Revenue Booked - - - 6,260 5,175 5,685 5,838 Mortgage Receivables - - - 5,008 7,896 10,157 11,340 6,812 3,472 1,161--- - Revenue from Land Sales (A) - - - 26,260 21,675 23,865 24,486 - - - B. Revenue from Land Lease (385 rai) 1. Land for Industry (361 rai) - Rai of Land Leased (Cumul.) - - - 125 205 285 361 361 361 361--- 361 361 - Average Annual Rental3/ _ - - 25.0 27.1 29.4 31.9 34.6 37.6 40.8- 82.1 87.0 Revenue _ _ _ 3,125 5,555 8,379 11,516 12,491 13,574 14,729 29,638 31,417 2. Land for Commercial Units (24 rai) - Number of Units (Cumul.) - - - - 50 100 150 200 - - Premium per Unit - _ _ _ 40 44 48 53 _ Revenue from Premium - - - - 2,000 2,200 2,400 2,650 - - Starting Rental/Unit for Year - _ _ - 2.0 2.2 2.4 2.6 2.6 2.6- 2.6 2.6 Revenue from Rentals of Com. Units - - - - 100 210 330 460 460 460--- 460 460 Revenue from Land Lease (B) - - - 3,125 7,655 10,789 14,246 15,601 14,034 15,189-30,098 31,877 C. Revenue from Factory Rentals (7 rai) Number of Units (Cumul.) - - - - - 6 10 14 14 14--- 14 14 Average Annual Rentals4/ 285 302 320 319 3.60--- i25 768 Revenue from Factory Rentals (C) - - - - - 1,710 3,020 4,480 4,746 5,040--10,150 10,752 D. Revenue from Warehouse & Housing Rentals - Stores/ - - - 540 1,059 1,393 1,476 1,564 1,658 3,336 3,536 - Housing Rentals4/ _ - - - 134 173 185 197 208--- 421 448 Revenue from Warehouse & Canteen Rentals Q - - - - 540 1,193 1,566 1,661 1,761 1,866 3,757 3,984 E. Maintenance & Service Charges - Number of Rai (Cumul.) - - - 225 388 554 709 717 717 717--- 717 717 - Average Charge per Rai_/ _ _ _ 0.72 0.76 0.81 0.86 0.91 0.96 1.02 2.06 2.18 Revenue from Maintenance (E) - - - 162 295 449 609 652 688 731---1,477 1,563 F. Water Supply & Sewage Disposal - Average Charge per Rai-/ 18.0 19.1 20.2 21.4 22.7 24.1 25.5 52.0 55.1 Revenue from Water & Sewage (F) - - - 4,050 7,411 11,191 15,173 16,276 17,280 18,283--37,237 39,506 Total Revenue (A) to (F) - - - 33,597 37,576 49,197 59,100 38,670 38,509 41,109-82,719 87,682 Repayment by MEA5/ - - - - - - - 2,000 2,800 - -- Gross Revenue - - - 33,597 37,576 49,197 59,100 40,670 41,309 41,109--82,719 87,682 Total Mortgage Receivables - - - 5,008 7,896 10,157 11,340 6,812 2,335 1,161-- 1/ Assumed 10% increase p.a. for starting contract 2/ Assumed a down payment of 20%, four equal annual installments of contract price and an interest charge of 127. on unpaid balances 3/ Assumed an 8.5% increase p.a. on an average 4/ Assumed a 6% increase 5/ Cost of power installation is assumed to be refunded by MEA in 1983 and 1984 Industrial Projects Department August 1977 ANNEX 27 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT OPERATING COST ESTIMATE - 1983- No. Salary Scale - 1976 Monthly Pay- 1983 2/ (Bht) (Bht) I. Salaries and Wages Management Section Estate Manager 1 7,660-13,325 13,500 Security Officer 1 2,560- 4,660 4,500 Watchmen 3 1,015- 2,850 6,750 Sub-Total 9 35,330 Accounting Section Accountant 1 4,730- 8,950 9,000 Clerks 2 2,520- 4,660 4,500 Sub-total 2 13,500 Maintenance Section Supervising Engineer 1 4,730- 8,950 9,000 Technicians 2 3,420- 7,660 5,250 Maintenance Workers 8 1,015- 2,850 18,000 Sub-total 10 32,250 Total Employees 17 70,500 (846,000 per year' 1/ First Year after full occupancy and full administrative staff. 2/ In current 1983 Bht, assuming inflation rate of 6% p.a. ANNEX 27 Page 2 Annualy Cost-1983 (Bht) II. Administration Costs IEAT's Central Office 700,000 Printing & Stationery 50,000 Utilities 20,000 Communication 14,000 Transport 20,000 Miscellaneous 50,000 Total 854,000 III. Maintenance Costs Civil Works (2% of Fixed Assets) 1,709,000 Water and Sewage (50% of Revenue) 8,138,000 Total 9,847,000 Total Operating Costs in 1983 11,547,000 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT OPERATING COSTS PROJECTIONS (Current Bht '000) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1997 1998 A. Salaries and Wagesl/ - - - 223 395 586 798 846 897 951 1,913 2,028 B. Administration2/ - - 323 583 642 706 776 854 940 1,034 2,080 2,205 C. Promotion - - 2,000 1,000 1,000 1,000 1,000 - - - - - D. Repairs and Maintenance 1. Civil Works3/ - - - 160 676 1,409 1,612 1,709 1,811 1,920 3,863 4,095 2. Water and Sewage4/ - - - 2,025 3,706 5,596 7,586 8,138 8,640 9,142 18,396 19,500 E. Payments for Power Station5/ - 2,400 - 2,400 - - - - Total Operating Costs - 4,723 3,991 8,819 9,297 11,772 11,547 12,288 13,047 26,253 27,828 1/ Assumed to increase as shown through (i) staff buildup ari (ii) 67, p.a. salary increase paralleling the general inflation rate. 2/ Assumed to increase by 10% p.a. from 1980 to 1985 and by 6% thereafter. These administrative expenses include approximately 10% p.a. of IEAT central office overheads. 3/ Assumed 2% of investment in land development, buildings and equipment, and increases of 6% p.a. after completion of the project. Z/ Assumed at 50% of revenue derived from water and sewage charges. 5/ Power installation is prepaid by IEAT and refunded later in 1983 and 1984. Industrial Projects Department August 1977 x D S > THAILAND APPRAISAL OF THE IAT KRABANG INDUSTRIAL ESTATE PROJECT INCONE PROJECTIONS (Current Bht '000) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 --- 1997 1998 Revenues Gross Revenues" - - - 33,597 37,576 49,197 59,100 40,670 41,309 41,109 --- 82,719 87,682 Costs Total Operating Costs2- - - 4,723 3,991 8,891 9,297 11,772 11,547 12,288 13,047 --- 26,253 27,827 Interest & Commitment Fee (IBRD)3/ - - 1,546 4,555 7,093 7,527 7,600 7,472 6,960 6,448 --- 304 - Depreciation-4 - - - - 1,930 3,860 3,860 3,860 3,860 3,860 --- 3,860 3,860 Costs of Land Sold - - - 20,700 15,525 15,525 14,490 - - -- Total Costs - - 6,269 29,246 33,439 36,209 37,722 22,879 23,108 23,355 --- 30,417 31,688 Income (Deficit) Before Tax - - (6,269) 4,351 4,137 12,988 21,378 17,791 18,201 17,754 --- 52,302 55,994 Land Sale Tax5/- - - 578 477 525 548 - - -- Income (Deficit) After Tax - - (6,269) 3,773 3,660 12,463 20,830 17,791 18,201 17,754 *-- 52,302 55,994 Cumulative Income - - (6,269) (2,496) 1,164 13,627 34,457 52,248 70,449 88,203 --- 506,262 562,256 1/ From Revenue Projections, Annex 26. 2/ From Operating Costs Projections, Annex 27. 3/ Based on Projected Disbursements, Annex 25. 4/ Assumed annual straight-line depreciation rates prevailing in Thailand: 2.5% for roads and drainage; 42 for buildings; 5% for capitalized engineering costs; 7.5% for water, power and sewage disposal facilities and 10% for miscellaneous equipments. 5/ 2.2% land sale tax. Industrial Projects Department August 1977 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT CASH FLOW PROJECTIONS (Current Bht '000) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 --- 1997 1998 Sources of Funds Income - _ (6,269) 3,773 3,660 12,463 20,830 17,791 18,201 17,754 --- 52,302 55,994 Depreciation - 1,930 3,860 3,860 3,860 3,860 3,860 --- 3,860 3,860 Cost of Land Sold - - - 20,700 15,525 15,525 14,490 - - - Government Contribution 25,000 21,500 20,000 10,900 - - - _ _ Increase in Loan (IBRD) - - 23,000 60,000 10,000 2,000 - - - - Decrease in Mortgage Receivables - - - (5,008) (2,888) (2,261) (1,183) 4,528 3,340 2,311 --- - _ Total Sources 25,000 21,500 36,731 90,365 28,227 31,587 37,997 26,179 25,401 23,925 --- 56,162 59,854 Applications of Funds Repayment of IBRD Loan - - - - - - - 3,200 6,400 6,400 --- 6,400 2,200 Payment for Land 25,000 - - - - _ _ _ _ Land Development - 10,043 42,650 51,686 11,448 - - - - Buildings - - - 33,063 14,220 - - - - Eng./Archi. Service & Technical Assistance - 904 2,970 5,470 624 - - - - Total Application 25,000 10,947 45,620 90,219 26,292 - - 3,200 6,400 6,400 --- 6,400 2,200 Cash Surplus (Deficit) 0 10,553 (8,889) 146 1,935 31,587 37,997 22,979 19,001 17,525 49,762 57,654 Cumulative 0 10,553 1,664 1,810 3,745 35,332 73,329 96,308 115,309 132,834 ---521,574 579,228 Debt Service - - - - - - - 10,672 13,360 12,848 --- 6,704 2,200 Debt Service Coverage - - - - - - - 3.15 2.42 2.36 --- 8.42 28.21 Industrial Projects Department August 1977 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT PRO FORMA BALANCE SHEET (Current Bht '000) 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 --- 1997 1998 Assets___ Current Assets Cash - 10,553 1,664 1,810 3,745 35,332 73,329 96,308 115,309 132,834--521,574 579,228 Mortgage Receivables - - - 5,008 7,896 10,157 11,340 6,812 3.472 1,161-- - - Total - TO,553 1,664 6,818 11,641 45,489 84,669 103,120 118,781 133,995--521,574 579,228 Fixed Assets Land 25,000 35,043 77,693 129,379 140,827 140,827 140,827 140,827 140,827 140,827--140,827 140,827 Buildings - - - 33,063 47,283 47,283 47,283 47,283 47,283 47,283-- 47,283 47,283 Eng/Arch.&T/A - 904 3,874 9,344 9,968 9,968 9,968 9,968 9,968 9,968-- 9,968 9,968 Less: (1) CumuLDepreciation - - - - 1,930 5,790 9,650 139510 17,370 21,230-- 67,550 71,400 (2) Cost of Land Sold 20,700 36-225 51,750 66,240 66,240 66,240 66,240-- 66,240 66,240 Total 25,000 35,947 81,567 151,086 159,923 140,538 122,188 118,328 114,468 110,608-- 64,288 60,428 Total Assets 25,000 46,500 83,231 157,904 171,564 186,027 206,857 221,448 233,249 244,603--585,862 639,656 Liability and Equity Current Liability Debt Maturing --IBRD - - - - - 200 6,400 6,400 6,400-- 2,200 - Total - - - - - - 3,200 6,400 6,400 6,400-- 2,200 - Long Term Liabilities IBRD Loan - - 23,000 83,000 93,000 95,000 91,800 85,400 79,000 22,600 -- - - Total Liabilities - - 23,000 83,000 93,000 95,000 95,000 91,800 85,400 79,000 -- 2,200 - Equity Government Contribution 25,000 46,500 66,500 77,400 77,400 77,400 77,400 77,400 77,400 77,400-- 77,400 77,400 Retained Earnings - - ( 6,269) (1,996) 1,664 14,127 34,957 52,748 70,949 88.703--506,762 562,756 Total Equity 60,231 75,404 79,064 91,527 112,357 130,148 148,349 166,103--584,162 640,156 Total Liability and Equity 25,000 46,500 83,231 157,904 171,564 186,027 206,857 221,448 233,249 244,603--585,862 639,656 Current Ratio - - - - - - 26.5 16.1 18.6 20.9-- 237.1 - Debt/Equity Ratio - - 28:72 52:48 54:46 51:49 45:55 40:60 35:65 30:70 0:100 0:100 Industrial Projects Department o August, 1977 ANNEX 31 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT FINANCIAL RATE OF RETURN CALCULATIONS 1. The financial rate of return (FRR) was calculated by using the phased capital costs, operating costs and revenue projections. The project life is assumed to be 25 years and the residual value was obtained by assuming zero value for buildings and 41.4% of land remaining to IEAT at 1976 prices. A 41.4% remaining ratio was obtained by deducting from the original 1,007 rai of the land sold, land for utilities and landscaping. The rate of inflation taking place through the project life was assumed to be 6% p.a. Operating costs and revenues after 1985, when the project operations will be stabilized, are assumed to be increasing at a constant rate of 6% p.a. Thus, the obtained FRR is 11.5% in constant terms and 18.1% in current terms (Addendum 1). 2. A sensitivity test was also made to check the project's financial resilience. The FRR is quite sensitive both to the increase in capital costs a -f.'.the decrease in revenues. The magnitude of changes in FRR caused by changes in costs and revenues is tabulated in Addendum 1. 3. Other variations which the project might face are also considered as listed below: (i) Construction of project is completed as scheduled but operating costs increase by 10% due to higher real salaries and additional repair and maintenance; the FRR in constant terms is still 10.9%. (ii) Project completed as scheduled but sale/lease is sluggish and delayed by 1 year and 2 years; FRR is 9.6% and 8.2% respectively. (iii) Construction is delayed by 1 year and capital costs increase by 10% thus causing delays in sales/leases by 2 years; FRR is 7.7% which is considered as the worst case conceivable under current circumstances. 4. In current terms, the FRR drops to about 5% when revenues decrease by as much as 50%. Translating a 50% decrease in revenues into a 50% s _l of occupancy and assuming 50:50 equity and loan financing, this is t&e xrea&-even point after servicing long-term debt. Industrial Projects De artment August 1977 - ANNEX 31 Addendum I DATE TABLE FOR FINANCIAL RATE OF RETURN CALCULATION Current Terms (Bht '000) Constant Terms (Bht '000) Capital Operating Revenues Deflator Capital Operating Revenues Year Costs Costs Costs Costs 1 (1976) 25,000 0 0 .94 26,596 0 0 2 (1977) 10,947 0 0 1.00 10,947 0 0 3 (1978) 45,620 4,723 0 1.06 43,038 4,456 0 4 (1979) 90,219 3,991 33,597 1.12 80,553 3,563 29,997 5 (1980) 26,290 8,819 37,576 1.19 22,094 7,411 31,576 6 (1981) 0 9,297 49,197 1.26 0 7,379 39,045 7 (1982) 0 11,772 59,100 1.34 0 8,785 44,104 8 (1983) 0 11,547 40,670 1.42 0 8,133 28,641 9 (1984) 0 12,288 41,309 1.50 0 8,192 27,539 10 (1985) 0 13,047 41,109 1.59 0 8,206 25,855 11 (1986) 0 13,829 43,695 1.69 0 8,206 25,855 24 (1999) 0 24,498 92,943 3.60 0 8,206 25,855 25 (2000) (237,268) 31,268 98,519 3.82 (62,112) 8,206 25,855 Financial Rate of Return 18.1% 11.5% SENSITIVITY Current Terms Constant Terms Percentage Changes Percentage Changes Rate of Capital Operating Revenues Rate of Capital Operating Revenues Return (%) Costs Costs Return (%) Costs Costs __ _ 20.0 -10 0 0 13.2 -10 0 0 19.1 - 5 0 0 12.3 - 5 0 0 17.5 + 5 0 0 10.8 + 5 0 0 16.7 +10 0 0 10.1 +10 0 0 18.8 0 -10 0 12.1 0 -10 0 18.5 0 - 5 0 11.8 0 - 5 0 17.9 0 + 5 0 11.2 0 + 5 0 17.6 0 +10 0 10.9 0 +10 0 8.9 0 0 -40 7.2 0 0 -20 13.7 0 0 -20 9.4 0 0 -10 15.9 0 0 -10 19.3 0 0 + 5 20.4 0 0 +10 Industrial Projects Departments August 1977 ANNEX 32 THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT ECONOMIC RATE OF RETURN CALCULATIONS 1. The economic rate of return (ERR) is calculated by revalueing the financial values of capital costs, operating costs and revenues to economic values by applying various conversion factors so that each of the benefit/cost streams may reflect the true economic worth to the economy. Th numeraire used is the public income in the hands of the government. 2. The project's inputs are land, engineering services, equipment and construction materials and civil works; its outputs are sale/lease of land, lease of factory buildings and services rendered to entrepreneurs locating in the industrial estate. Internatinally traded goods and services ('tradables') are valued at their border prices. Non-traded goods and services are divided into: (1) tradable equipment and materials which are then valued at border prices; and (2) labor which is valued at shadow wage rates. 3. The capital costs are converted into economic values as shown in Annex 32, Addendum 1. The land was previously used as paddy field and purchased by IEAT for estate site at an economic value which reflects the net foregone output of the land. The net foregone output of the land is calculated as follows: (a) The annual rice production of rice as about 1.20 ton/rai (.56 ton/rai in wet season and .64 in dry season). (b) The average sale price of rice in the vicinity of Bangkok was about Bht 3,500/ton. ,he gross foregone output is approximately Bht 4.2M, of which costs of rice production excluding land rent, and normal profit are assumed to be Bht 2.8M. Therefore, net foregone output of land is Bht 1.4M. Assuming time preference being 6%, the net present value (NPV) of the net foregone output over an infinite time is given below: NPV = 1.4 + 1.4 * 1 + 1.4 * 1 + I+.06 (1+.06)' = 1.4 1+ 1 + 1 + 1.4 1+.06 = 24.963 .06 ANNEX 32 Page 2 This NPV is comparable to Bht 25M which is the acquired price of 1,007 rai. Thus, application of various conversion factors for each corresponding project cost component gave the economic project cost of Bht 177 million which is .89 of the financial value. 4. The operating costs, which include salaries and wages, adminis- trative expenses and repair and maintenance costs, were also adjusted by applying corresponding conversion factors. The economic cost of repair and maintenance was calculated by applying the conversion factor of .87, which is the ratio of economic/financial value for land development and buildings. The economic value of operating costs thus obtained is .85 of the financial value (Addendum 2). 5. Revenues are economic rents charged to land, factories, warehouses and services. The-¢ prices and charges are financially competitive with those of privately developed similar projects and the market for industrial estates are considered fairly perfect. Furthermore, the revenues in the hands of IEAT can be regarded as public income, the numeraire. 6. On these economic values for the project's inputs and outputs, the economic rate of return is 14.1%. Sensitivity test of ERR is made, first, in terms of changes in the conversion factors. If civil works, skilled labor and sem'skilled labor is converted in a more conservative manner, with correspond- ing figures being 0.85, 1.00 and 0.65 respectively, the ratios of economic value/financial value in capital and operating costs increase from .89 to .94 and from .85 to .91 respectively. In this case, the ERR in constant terms will be reduced to 12.9%. 7. Then, as in the case of FRR, the sensitivity of ERR to changes in key variables was examined as follows: (a) The project is completed as scheduled but the sales/lease is delayed by one year; ERR is 11.7% in constant terms. (b) The project is completed as scheduled but the sales/lease is further delayed by two years; ERR is 10.0%. (c) The worst case: the construction is delayed by one year, thus entailing a 10% increase in capital costs and a two- year delay in sales/lease of the project; ERR is 8.0%. Industrial Projects Department August 1977 Conversion of Capital Costs _nto Fconomvlc Value Financial Value Economic Value Local Purchase Local Purchase Direct Eqpt. & Skilled Unskilled Direct Eqpt. & Skilled Unskille4 Economic Value/ Imports - Materials Labor Labor Total 1120ortt- Materia1s./ Labor- Labor- Total Financial Value Land - 25,000 - - 25,000 - 25,000- - 25,000 1.00 Land D3velopment Land Fill & Bunding 2,511 5,649 - 1,883 10,043 2,511 4,237 941 7,689 Road & Drainage 16,486 22,963 1,913 5,741 47,103 16,486 17,222 1,760 2,870 38,338 ac.Y; S,wply 14,561 5,304 234 702 20,801 14,561 3,978 215 351 19,105 Se"aLe Disposal 26,146 5,228 327 981 32,682 26,146 3,921 301 490 30,858 Telaco.nmunication 4,158 728 312 - 5,198 4,158 546 287 4,991 Sub-Total 63,862 39,872 2,786 9,307 115,827 63,862 29,904 2,563 4,652 100,981 0.87 Buildings Std. Factory Bldg. & Administration Bldg. 24,398 18,775 2,050 2,050 47,283 24,398 14,081 1,886 1,025 41,390 0.87 7.gjagerin/.Arch. Service 2,489 - 4,987 - 7,476 2,489 - 4,987-/ - 7,476 1.00 Technical Assistance 1,744 - 748 - 2,492 1,74 - 698 _-2,442 '0.98 Total 92,493 58,647 11,357 198,078 92,493 6 I0I134577 177,289 0.89 a/ Border Prices b/ Derived by applying 'Conversion Factor for Civil Works' of 0.75 c/ According to the judgement of the appraisal mission, market value of land at Lat Krabang reflects the opportunity cost d/ Derived by applyirg'Conversion Factor for Skilled Labor' of 0.92 e/ Professional staff is considered scarce in Thailand, therefore economic values are identical with financial values f/ Derived by applying 'Conversion Factor for Unskilled Labor' of 0.50 Industrial Projects Department August 1977 98' 100' . . 02' 104' 2 i i N 20' 20' ( -20' rho,,920- = X THA LAND A j ,~ L. A O S ~fLA i Chiong MC, -~~~~~ iA-i"o,L'o \Moe Sot Ph,t Mo- v,Iok ko MO,, -~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 8 Rotchthor, . to'= * tf = 0 7 6 A ' - < S e N i O -e s:4 T H AIL/\N D 14'I I I =NDUSTRIALP ' ;t < S \ > B , &!i ' ,,; pm , 1 7 \ ~~~~ELECTRIC POWER SYSTEM -1 0'c 0 0& l t-k<' ;> ttIN%TMApf0 al Pooer Plnsta Andomara T h 00 l LAT KRABANG INDUSTRIAL ESTATE & EXPORT PROCESSING ZONE PROPOSED LAYOUT I aXp . .G.I G. t R IR Scale 1:1I1,000 S.1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~C N/ -R.- R RAILROAD (PROPOSAL) A p PUMPING STATION ELEVATED WATER SUPPLY TANK /Kong Hua Ta Keh WASTE WATER TREATMENT PLANT ::::: :::. E.P.Z. EXPORT PROCESSING ZONE ' / SI. SMALL SCALE INDUSTRY ,o |l| G.l. GENERAL INDUSTRY 0 RECREATION AREA W M | MAINTENANCE UNIT W C | COMMERCIAL AREA World Bank- 17963