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The "Mega Projects" Update |
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Author's Note: This article summarizes key financing elements of the three major mass transit projects comprising Bangkok's original US$8 billion transportation program. The author previously served as a consultant to USAID in support of transportation planning, project development and implementation programs for Bangkok's metropolitan transport systems. |
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(Note: The main article beginning with the Overview section follows this Update). The initiation of service on Bangkok's "Skytrain" in early January 2000 represented two important milestones. Firstly, for Bangkok it represented the first major effort to offer some relief to urban traffic flow in one of the world's most highly congested cities. Secondly, it represented one of the world's firsts and largest mass transit rail projects to be entirely privately financed. The elevated rail system, composed of 23 stations and a total length of 23.5 kilometer, runs 40 feet above ground along two intersecting tracks located above Silcom and Sukhumvit Roads, two of the city's main commercial and most highly congested roadway corridors. The $1.3 billion "Skytrain" System is operated by BTSC (Bangkok Transit System Corporation) as part of their 30 year BOT (Build-Operate-Transfer) contract with the government. The BTSC project is the first operating results of several major transit initiatives which are scheduled to be completed in Bangkok within the next eight to ten years. The following article discusses how those projects were initially structured and financed. |
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Background During the 1980's Bangkok's population increased from 8 million to almost 16 million, a 50 percent increased that has produced some of the most severe traffic congestion and related air pollution problems of any city in the world. Although there have been various government efforts to improve traffic managements, private vehicle ownership has dramatically increased almost 35 percent annually. Within the past ten years this has resulted in average traffic speeds continuing to decline and rush hour periods continuing to increase. The Express and Rapid Transit Authority of of Thailand estimates that commute time now accounts for about one-quarter of the time spent at work with resulting negative effects on business efficiency and productivity. The economic impacts of congestion, when combined with the increasing health impacts from lead-related exhaust pollution, are increasingly showing that Bangkok needs to take specific actions to address its growing traffic problems. There have been many planning efforts within the past 15 years, but so far few implemented coordinated projects. |
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The latest metro area planning proposals, one prepared by a team from the European Commission, Bangkok's Metropolitan Administration and the Massachusetts of Institute of Technology and the other prepared by the Japan International Cooperation Agency, agree on the need for developing Bangkok's outlying centers into a polycentric urban pattern, much like Tokyo's. While these comprehensive planning proposals are being discussed, their implementation, like many similar efforts, appears to remain a distant goal as institutional issues regarding the integration and implementation of urban planning and transportation planning remain to be resolved. |
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However, there are important mass transit elements of the city's longer term traffic management plan which offer some potentials for improving Bangkok's traffic. Two privately funded and one government funded mega projects have been proposed and are in various stages of implementation. These include:
Some of the major financing issues and organizational components of each of these projects are summarized below. |
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Tanayong's "Skytrain" Bangkok Transit System Corporation Project The most advanced of the three projects, as mentioned in the Preface above, is the Bangkok Transit System Corporation (BTSC) metro rail "skytrain" system which began official operations in December 1999. Begun in 1994, BTSC, a subsidiary of Tanayong PCL real estate, is estimated to cost $1.7 billion, which includes pre-operating expenses and finance charges during the construction period. The project is a 24 km electrified train system having 23 elevated stations with north-south and east-west intersecting lines running over two of the most heavily traveled densely developed business corridors in the city, Silcom and Sukhumvit Road. Initially conceived as a light rail system, BTSC has evolved into a full metro system with capacities similar to Singapore's MRTA but unlike Singapore opened with three-car trains. Although an elevated rail system had been planned in Bangkok for over twenty years, lack of public funding was the prime obstacle. However, with the assistance of the International Finance Corporation (IFC) and others in 1995, the project was structured as 30 year Build-Operate-Transfer (BOT) turn-key limited-recourse concession contract with a fixed-price, delivery date and guaranteed performance. |
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BTSC's debt financing reportedly included $548 million from local Thai banks, an initial $50 million A loan from IFC for its own account (plus a second IFC equity investment of $20 million in June 1976), $424 million from the German government's KfW and $676 million from equity contributors. Although a Yankee bond issue was explored, it was not implemented when found to be no less expensive than bank financing. Tanayong currently has 69.3% of the project's equity, and as required by the Concession Agreement, will retain at least 51% until opening. Italian-Thai Corporation (ITD), the large Thai civil contractor, currently hold about 8.7% equity. Other shareholders include: T-Yong subsidiary Treasure Pool Investment at 2.1 %; Land & Houses at 2.9 %; Siam Commercial Bank with approximately 1.3 %; TOA (Thailand), the paint maker, at about .4% , and SCB Securities holds approximately .14 %. BTSC also plans to offer additional public shares although the financial crisis facing the country the past few years postponed the IPO. The 154 million shares were initially secheduled to be offered between Septermber and October of 1998 at 19-25 baht each. BTSC, whose majority shareholder is property developer Tanayong (T-Yong), correctly predicted that the IPO postponement would not effect the implementation schedule. The project had adequate capital to implement the project as scheduled and their reportedly new shares may have been offered to the original equity investors. Construction has been by the consortium which includes Siemens and ITD. Following the finalization of financing, authorization to commence the project was issued last October (1996) with a scheduled completion date of 1 January 2000, although project sponsors correctly anticipate a slightly earlier opening in late 1999. A key elements in the project's financial feasibility was BTSC's indexed fare schedules, which gives the corporation the right to raise fares 7 percent for each 5 percent increase in the inflation rate. With the projected ridership, BTSC expects to recover its investment in 7 years with an internal rate of return of 20 percent. Although land acquisition and other problems delayed the initial 1997 completion date to late 1999, BTSC's potential for attracting 40 percent of the peak hour commuters in these heavily traveled corridors has the potential for a positive start in helping with Bangkok's massive traffic problems. The project financing also has important demonstration effects. As the first mass transit rail system in a developing country done by the private sector with limited recourse financing, it has become an important demonstration project for emerging market transportation infrastructure. |
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Hopewell Holdings' Elevated Rail Transit Project (Update to this Cancelled & Revised Project.) In September 1997, the Thai government cancelled Hopewell Holdings' contract for the $3.2 billion Bangkok Elevated Road and Train System (BERTS), which was to be one of Bangkok's three key major metropolitan mass transport programs. Also, in January 1998 the Ministry of Transport and Communications approved a new drastically scaled back roadway project to take place of the Hopewell project. The new 11 kilometer project is estimated to cost 20 to 40 billion Bht and have two to four lanes built in three sections. This latest replacement to the Hopewell proposal was reduced from a planned 35.8 km roadway proposal earlier proposed by the government. There is little doubt that the many facited political and financial fallouts from the Asian crisis during the last of the 1990's had an impact on the demise of the ambitious Hopewell project. However, as can be deduced from our earlier review of the project below, one wonders if the seeds to the project's problems and ultimate demise were not more deeply routed in the inherent difficulties in implementing such a complex private-public dance needed to make the project succeed. Also, no doubt the Hopewell results will likely cause substantial rethinking of current near-to-medium term risk-analysis profiles of financial viability for many of the regions mega projects. A key lesson to be learned, especially for the public sector, is that government needs to work closely with all parties in such mega projects to insure that public-private actions and investment decisions are coordinated. Especially, the public sector must provide on schedule its agreed upon support assets to allow the private sector to remain financially viable during the all important construction period. Unless public commitments are implemented in a transparent and timely manner, major difficulties will lie ahead in attracting the private investment required to provide the great Asian infrastructure needs within the next decade and beyond. Providing transaction transparencies and public-private coordination and follow-through assurances are keys to insuring that the many "risks" among all parties in major infrastructure projects are acceptable and manageable. Our original Hopewell article, drafted in 1997-98, is included below to reflect some of the key components of the original financial structuring and scope of the Hopewell project. Gordon Wu's $3.2 billion Hopewell Holdings' project was the first of Bangkok's three mega ventures to initiate construction after receiving a 30 year concession in December of 1991. To be constructed on land owned by the State Railway of Thailand (SRT), the project is to include a three level 60 kilometers system with SRT's heavy rail lines on the lower, commuter rail on the mid level and a six-lane expressway on the upper level. The railway was to enter Bangkok from the north and the joint rail road system runs north-south as well as east-west across the city. Although scheduled to be completed in 1998, the project was over three years behind original schedules when suspended, due to various problems between Hopewell and SRT. Hopewell Holdings reportedly intended to float over $300 million of its Thailand company while adding further equity of over $590 million. The debt portion of $2.1 billion was expected to include $1.2 billion European government export credit guarantees, $600 million in foreign commercial loans and $300 million in local bank loans. Although the income streams from the transportation and station retail components of the project were strong, they were not considered sufficient to finance the project. Shortfalls were expected to be covered by income derived from developing over 600 rai (250 acres) of SRT property promised to the Hopewell project. Timing of the income streams of various components of the project, combined with the difficulties facing SRT in land acquisition needed for the project, all combined to create difficulties for Hopewell in sustaining and implementing a financially viable project. |
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Metropolitan Rapid Transit Authority's Project Government policy changes related to financing, implementation and conceptual design have hampered the implementation of this $3.2 billion heavy rail systems since first planned in the mid 1970's. Although no construction has begun, the project is planned to have two major 10 kilometer components, one between central and northeastern Bangkok, the second between northeastern and northwestern Bangkok. Current plans call for the entire 20 kilometers to be underground. In 1990, a consortium lead by Canada's SNC Lavalin gained rights to negotiate building the project but was canceled by the government when the consortium's financing arrangements were not approved. When the government later decided that all mass transit systems in the 25 square mile area of central Bangkok must be underground, the projects concession awarded in 1993 to property developer Bangkok Land was also terminated and the government decided to take control of the project. Because the transit authorities studies indicated that returns to the private sector for the overall system would not be attractive to commercial investors, the government decided to fund 80 percent of the project costs, those related to civil engineering and construction, using bonds, commercial loans and soft loans. A private sector concession, however, would be selected to finance the trains and equipment as well as operate the system, as returns to the private sector were deemed attractive for these operating elements of the system. |
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Implications for Private Infrastructure Investment Asia's needs for infrastructure to support its tremendous economic development potential offers significant opportunities for profitable participation by the private sector. The World Bank estimates that within the next 15 years, the region alone needs over $1.5 trillion additional investment in roads, water supply, power and other infrastructure to sustain it's rate of industrialization in recent years. In the 1980's, many Asian governments thought that BOT's and other forms of privatization would provide a least a third of the needed investment. However, this has not occurred as World Bank studies show that since the 1980's less than 10 % of the new Asian infrastructure has been from private investment. As Bangkok's $ 8 billion mass transit program demonstrates, paths to fully implementing large scale privatized infrastructure are complex and carry significant risks to potential investors, risks which must be fully examined and allocated in ways appropriate for all parties, both public and private. However, from what we have learned so far, it cannot be overemphasized that successful private funding of large scale infrastructure anywhere in the world requires consistent coordinated government infrastructure policy in planning, finance and implementation. This includes government's critical roles in coordinating their own related investments within and across infrastructure sectors, while also coordinating those of the private sector. Governments also have critical roles in structuring transparent predictable permitting, procurement, contracting, banking and other legal and regulatory frameworks which instill investor confidence. Such public sector efforts appear essential if governments are to enable the enormous contributions required from foreign as well as domestic investors in helping meet the development challenges of the coming new century. |
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| Sources contributing to the above article.
Passenger Transport, January 24,2000. Infrastructure Finance, November, 1996 and February/March 1966; Far Eastern Economic Review, 12/1996 and 1/1997; World Bank's World Development Report 1996-98; International Finance Corporation's Press Releases of 6/1995 and 7/1996; Asiaweek's This Week on Line, 3/1997; the author's in-country research and USAID Bangkok Transportation Program project report field notes; and the APA Transportation Planning Division newsletter, Bangkok transport article in Vol. XXII, No. 3, 1995. Special thanks also to Poolsuk (Val) Mansfield, Project Director of Tanayong's Bangkok Transit System Corporation, for his valued input on the current status of the BTSC project. For additional related sources, also see the "Links" Page of this website.
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