ECONOMY

Making the most of state assets

Wichit Chantanusornsiri

The float of Airports of Thailand's shares after it was privatised turned out to be a big success.

EVERY MONTH, the Finance Ministry dutifully reports what could be considered an update on the country's balance sheet _ tax revenues, budget expenditures, new borrowings and public debt levels.

But while the country's liabilities are plain, assessing assets, whether they be state land, concession rights granted to the private sector, or state enterprise holdings, is more difficult.

Raising the value of state assets has been a key element of the government's economic platform. Prime Minister Thaksin Shinawatra, in a speech in 2003, argued that raising the value of assets held by state enterprises alone by 10% would generate the equivalent of 100 billion baht for taxpayers.

According to the Finance Ministry, Thailand's 64 state enterprises have a collective asset value of 5.66 trillion baht, with liabilities of 5.11 trillion and capital of 545 billion. Looking at the balance sheet as a whole, state enterprises offer a return on assets of 2.57%, a return on equity of 26.73% and have a debt-to-equity ratio of 9.39 times.

The push to increase asset values and financial performance for state enterprises has been the main driver of the country's privatisation plan. By transforming state enterprises into public companies, divesting a minority share to the public and listing the companies on the stock exchange, the government hopes to expose state agencies to market forces, deepen and broaden the capital market and investor base and raise funds to reduce the public debt and burden on taxpayers.

The privatisation process to date has focused on the most profitable and professionally run state enterprises. Some, such as Krung Thai Bank and Thai Airways International, have long been traded on the Stock Exchange of Thailand but are set to see their state holdings reduced further. Others, such as PTT Plc and Airports of Thailand, have undergone privatisation as a first step toward eventual sector liberalisation.

As in other countries, state enterprises were first established to provide products and services that the private sector otherwise was unable or unwilling to offer. In some sectors, such as petrochemicals, telecommunications or electricity, state enterprises were necessary to overcome the immaturity of the local capital market. Development banks such as the Bank for Agriculture and Agricultural Co-operatives or the Government Housing Bank were needed to further state policy objectives in ways that private enterprise could not.

But with economic development and the increasing importance played by the private sector in the overall economy, the shift now is for state enterprises to scale back their activities and monopolies to allow the private sector to compete in offering public services. The 1997 constitution explicitly calls for free competition within the economy, with the state limited to playing a regulatory role overseeing private operators.

As the government moves to restructure state enterprises, a parallel initiative is under way to increase the value of state assets. The Treasury Department, a Finance Ministry unit that oversees 12.5 million rai of land nationwide, has explicitly announced a plan to increase the commercial returns from its land portfolio through concession contracts with private developers.

In Bangkok, examples of the policy include a 19-billion-baht project to develop 63 rai formerly used by the Mor Chit bus terminal, as well as a project to construct a luxury hotel beside the Chao Phraya River by using a century-old building previously used by the Fire Department and Customs Department.