ENERGY

Privatisation grinds to a halt

Soonruth Bunyamanee and Yuthana Praiwan

Egat's union is fighting to ensure that workers get the best possible deal from the listing.

Earlier this year, it seemed deregulation of the national power grid was practically a done deal. But the linchpin holding the entire plan together, the privatisation of the Electricity Generating Authority of Thailand (Egat), came loose after Prime Minister Thaksin Shinawatra, in the face of politically embarrassing labour action by Egat's union, ordered the process postponed indefinitely.

So thoroughly was it thrown off the rails that observers say the scheme is unlikely to proceed until after the general election due early next year.

The Thai Rak Thai Party, widely expected to win a second term on the popularity of its first-term policies, is thought to be patiently biding its time.

Energy Minister Prommin Lertsuridej has said a Thai Rak Thai administration would proceed with the privatisation of the utility and other state enterprises, although he added it would be put on hold for a while to address public scepticism.

Power demand is projected to grow by 1,200 to 1,500 Megawatts per year, based on projected economic growth of 7% to 8% annually. Current generating capacity now stands at around 20,000 MW, provided equally by Egat plants and private producers.

Dr Prommin said that with investment costs at around US$1 million per Megawatt, the financial needs of Egat would grow steadily.

Listing on the Stock Exchange of Thailand would give Egat access to capital markets and the ability to raise funds without inflating the public debt, allowing the government to devote scarce resources to other social development needs, said Dr Prommin.

Attempts to reform Thailand's electricity supply began losing momentum shortly after the current government came to power.

It cancelled plans for deregulation of the electricity market, a goal endorsed by the previous Democrat-led government, which called for the establishment of a power pool.

Under the pool system, a central market for electricity trading would be set up where large and small private and government power producers could freely buy and sell electricity.

Scrapping the original plan has resulted in a year's delay for full deregulation, experts say.

The cancelled deal called for Egat to be split into three groups _ electricity generation, power transmission and maintenance services _ with each arm privatised separately.

The power pool system and the planned spinning off of the utility's assets were strongly opposed by both Egat executives and labour leaders, who argued that a breakup would reduce overall value. They favoured wholesale privatisation along the lines of state oil giant PTT Plc.

Eventually, Mr Thaksin in early 2003 ordered that the privatisation be carried out with the organisation intact, in line with Egat's demands.

The premier said that keeping Egat's operations whole would give the state greater control over electricity prices and development of the energy sector.

An initial public offering was originally scheduled for March 2004, with the government to hold at least a 51% stake post-privatisation. The government had also reached an agreement with Egat's union leaders on share options for staff and other perks.

Attempts to privatise Egat have been undertaken for more than a decade by several governments, but Egat's powerful labour union has stymied every bid.

Buoyed by the favourable investment atmosphere earlier this year, Egat chose six financial advisers for its IPO, set to be the country's biggest ever at an estimated 300 billion baht worth of shares sold. They were Tisco Securities, SCB Securities, Merrill Lynch Phatra Securities, Morgan Stanley, Citigroup and JP Morgan.

The State Enterprise Policy Committee, chaired by Deputy Prime Minister Somkid Jatusripitak, approved the plan for Egat to list on the stock market by March 1, 2004.

But the first signs of the turmoil to come appeared in January when Egat's union threatened to stage a rally unless its members received a 21% wage hike and free shares in Egat.

Union leader Sirichai Maingam said at the time that while the union had in the past opposed privatising Egat, most of its membership now supported the move. The union therefore had shifted its stance to ensuring that Egat workers got the best possible deal from the listing.

He said the union was pushing for a 21% pay rise this year after Egat's management had proposed a 15% pay hike. The union had also urged the government to allocate stock to staff under an "8+2+3 formula" for the IPO. The 8+2+3 formula means that staff would receive shares at a par value in an amount equivalent to eight times their month salary, free shares equivalent to two times their salary and convertible stock equivalent to three times their salary.

The Finance Ministry has suggested that stock be allocated at a par value of eight times salary, but not for free.

The government also proposed increasing the state's minimum stake in Egat to 70% after privatisation, in a bid to head off charges that the utility would fall into the hands of foreign manipulators.

After both sides failed to reach an agreement, discord flared up until it was out of control and the deal was shelved.

Critics of the union point to what they perceive as cynical opportunism on the part of its leadership, who, after abandoning their principled stand against privatisation, later adopted a strategy aimed at milking the deal for as much benefit as possible.

Union tactics, which involved heavy use of the nationalist card, also came under fire for twisting the issue into one of "foreignisation", a charge the government vigorously denied.

The government itself was not spared criticism. Many called its approach wrong-headed, and accused it of alienating widespread public support for the policy when it decided to raise the energy adjustment tariff, known as Ft, in February by 12.16 satang to 38.26 satang a unit (kilowatt/hour).

The move caused electricity prices to rise to 2.63 baht from 2.51 baht per unit, or 4.8%.