With elections looming next year and a reversion to business as usual after a year of national mourning, Prime Minister Prayuth Chan-ocha’s coup-installed government has limited time to overhaul the country’s massive and lumbering state enterprise system.
Last month, the military-appointed National Legislative Assembly passed its first reading of a new draft law to reform the sector through improved governance.
Work on the bill began just weeks after the May 14, 2014, coup, led by heavy-weights such as Prasarn Trairatvorakul, a former Bank of Thailand governor, and Banyong Pongpanich, chairman of the Kiatnakin Phatra Financial Group and the country’s leading expert on privatization.
Despite Banyong’s initial presence on the bill drafting team, authorities have taken pains to stress that the state-owned enterprise (SOE) reform is not about privatization, a taboo topic that competing political camps have accused each other of selling out sovereign assets.
Yet many believe Thailand’s state enterprises desperately need an infusion of private sector thinking to improve efficiency, service and profitability. “This law is not related to privatization,” said Ekniti Nitithanprapas, director general of the State Enterprise Policy Office (SEPO.) “It is related to governance.”
Anti-privatization activists such as former Thai senator Rosana Tositrakul have criticized the draft bill as a “hidden privatization process.” SOE labor unions are also skittish about the law.
“The labor unions are quiet now because of the October [royal cremation] season, but they are ready to come out and say the law we are drafting right now intends to privatize them,” said Ekniti. “But we say what we need to do now is fix the system to make it more transparent with a good governance structure.”
With 56 SOEs, 11 of which are incorporated, Thailand’s state enterprise sector is huge with over 425,000 workers. Some, such as Thai Airways International and the national energy giant PTT, are already partly listed on the Stock Exchange of Thailand (SET).
SOE total assets grew from 4.3 trillion baht (US$130 billion) in 2004 to 14.9 trillion baht (US$450.8 billion) in 2016, while revenues trickled up from 1.4 trillion baht to 4.0 trillion baht over the same period. The state sector contributed 162 billion baht (US$17.5 billion) in tax revenues last year, 24% above target.
But state enterprises are also big under-performers. The average return on assets for the entire SOE system last year was 1.6%. Apart from entrenched inefficiency and often poor service, SOEs are also known to be sources of rampant corruption.
Past SOE privatizations have also been riddled with corruption. The partial privatization of PTT via an initial public offering on the SET in November 2001 was heavily criticized for benefitting then-Prime Minister Thaksin Shinawatra and his allies. The shares sold out in minutes, with politically connected investors receiving the lion’s share of the lucrative listing.
“I think NGOs want no more privatizations – PTT left a bad taste in their mouths and rightly so,” said Duenden Nikomborirak, research director at the Thailand Development Research Institute Foundation (TDRI) a Bangkok-based economic think tank.
NGOs and labor unions are not the only opponents to SOE reform. The process also threatens past powers at Thailand’s line ministries that controlled the most lucrative SOEs.
Current deputy prime minister Somkid Jatusripitak, the junta’s economic czar, tried to introduce SOE reforms back in 2003 when he served as finance minister for Thaksin’s first administration.
Korn Chatikavanij, another former finance minister and deputy leader of the Democrat Party, also tried to push through SOE reforms in 2010 under then Prime Minister Abhisit Vejjajiva. In both instances the reform proposals were shot down by their respective cabinets, with the opposition coming mainly from smaller coalition partners, Korn said.
Although all 56 SOEs are owned by the Finance Ministry – apart from partial public stakes listed for firms such as Thai Airways, PTT and Krung Thai Bank – Thailand’s political traditions have dictated that certain line ministries control individual SOEs.
The Transport Ministry and Royal Thai Air Force, for instance, have always selected the boards of Thai Airways rather than the Ministry of Finance. Similarly, the Energy Ministry controls board appointments at PTT, the largest stock by capitalization on Thailand’s bourse.
This explains why small parties in past coalition governments have been keen to head the Energy Ministry, which gives them sway over PTT’s huge annual budgets and a guaranteed rich profit stream from its pipeline operations. “It’s a terrible situation and it’s no wonder the state enterprises are so messed up,” said Korn.
Under the pending SOE bill, dubbed the ‘Improving Governance of SOEs Law’, all that would change. The bill will set up a holding company owned by the Finance Ministry, similar to Temasek Holding in Singapore and Khazanah National in Malaysia.
The new entity would be manned by a ten-person board, all of whom will come from the private sector, selected for their expertise. It will also be responsible for selecting the boards of Thailand’s 11 incorporated SOEs, including Thai Airways, PTT, Airports of Thailand Plc, Telephone Organization of Thailand and others.
The remaining 45 unincorporated SOEs will have their board selection process guided by SEPO under the proposed legislation. Both the holding company and SEPO will be under a 15-member Supervisory Board, comprised of ministers, bureaucrats and private sector members known already as the ‘Super Board’, which will set policies for all state enterprises.
The aim of the new law is to separate policy makers, active owners, sectoral regulators and operators. Although far from a cure-all for SOE’s multiple woes, just removing the exclusive power to appoint director boards from line ministries would be a step in the right direction, say analysts.
“If you look at the Singapore Airlines’ board there are a lot of guys from IBM, Ogilvy and Mathers, who have global experience. And what do we have at Thai [Airways]? Air chief marshals and the chief of police. So how is Thai going to compete?” said TDRI’s Duenden.
Many believe Thailand’s state enterprises desperately need an infusion of private sector thinking to improve efficiency, service and profitability
In the longer run, Thailand may be able to get rid of some of its least competitive SOEs without resorting to politically sensitive full-blown privatization. “There is always the possibility of running down the company…let it shrink away. If you take away their privileges [certain enterprises] couldn’t compete,” Duenden said.
Yet it’s just as likely SOEs expand before they shrink, judging by their outsized role under military rule. SOE’s total investment budget in fiscal year 2016/17 (ending September 30) was 580 billion baht (US$17.5 billion) and has been set at 800 billion baht (US$24.2 billion) for 2017/18, including big outlays for infrastructure mega-projects.
“Without SOE investments the Thai economy could not have recovered as it has,” Ekniti claims. “In 2014 exports and private sector investments were very weak, so only the public sector could boost the economy.”