Keeree Kanjanapas, the Thai property tycoon who built Bangkok’s Skytrain, the capital’s first mass transit rail system that opened in 1999, can be forgiven for regretting his multi-million dollar investment.
In an announcement explaining remedial measures to address a glitch on June 25-27 in the Skytrain’s new signaling equipment that created chaos and long delays for Bangkok’s rush-hour commuters – Keeree griped that when he first invested in the overhead train “he was unaware of all the factors involved.”
Keeree’s lack of foresight is understandable. The Skytrain, initially a 23.5-kilometer overhead track running above Bangkok’s busiest roads, was a unique investment in more ways than one. It and other mass transit rails are now being expanded in all directions in a frenzy of train-building in the capital and beyond.
“Number one, it was the first mass transit line that was totally invested in by the private sector…the only one in the world, I think,” said Anat Arbhabhirama, executive director to the BTS Group Holdings Public Company Limited, which runs the Skytrain, also known as the Green Line. “Secondly, it was the first mass transit in Bangkok and in Thailand,” said Anat, 80, a former Thai technocrat who has spent the last 27 years of his career at BTS.
Mass transit systems, as a rule, rarely make money. But back in the early 1990s, Thailand had caught the privatization bug and had offered the Green Line up as a private sector concession.
Keeree’s Bangkok Transit System Corporation (BTSC) won the bid for the 30-year concession from the Bangkok Metropolitan Authority (BMA), whose main contribution to the scheme was providing land rights to build the train’s foundation pillars along the meridians of Bangkok’s main roads including Sukhumvit, Phahonyothin, Silom and Sathorn.
No one had ever completed a mass transit system before in Bangkok, deemed one of the most traffic-clogged capital’s in the world, and no one knew if it would ever make money. And it didn’t, at least initially. “If somebody asked us to start at the beginning of the Green Line right now, we wouldn’t do it,” Anat said, echoing his boss Keeree.
There were several reasons the initial Skytrain concession proved to be a money pit. Firstly, it opened two years after the Asian financial crisis of 1997, another Bangkok initiative that sent the baht currency – and arguably the wider region – into a tail spin that hiked up BTS’s construction and materials costs.
Then there was the unexpectedly slow “ramp up” curve of the system’s ridership, which was earlier deemed too expensive for the poor and too plebeian for the rich. Ridership during the first year of operations was only 150,000 a day, well below the 600,000 per day break-even point for meeting operating costs and servicing debts.
It took about ten years for the Skytrain to “ramp up” ridership to 400,000 per day, which was promising enough to allow BTS to enter into a rehabilitation program with its main creditors.
Rehabilitation, helped by a large infusion of cash from a foreign hedge fund, acted to pay creditors and give the company a new start as BTS Group Holdings in 2010, with four separate business units comprising mass transit, media/advertising, property and services.
“It was a whole new company,” Anat said. “Our old lenders were gone, our old debt was gone.”
In 2013, the BTS Group Holdings launched the 62.5 billion baht (US$1.9 billion) BTS Rail Mass Transit Growth Infrastructure Fund (BTSGIF), on the Stock Exchange of Thailand (SET), Thailand’s first infrastructure fund. Since then, it has been easy riding for the company.
That was barring last month’s signaling glitch and interruptions caused to the service during the anti-government “Red Shirt” street protests of 2010 that closed down parts of Bangkok and saw at least one grenade attack on its elevated walkway during rush hour traffic.
But otherwise the Skytrain’s service performance has been impressive, analysts say. “The BTS is on a par with any metro system in the region in terms of quality,” said Ali Adam, co-founder and development director of Arcadia (Thailand) Co, a mass transit systems consultant.
“The initial Green Line was 100% privately funded, built and operated, but obviously, 20 years down the line, it’s a different game now,” said Adam, former East Asia development director for Halcrow, a British transport consultancy.
BTS’s Green Line has undergone two extensions to the east and west that has expanded its initial 23.5-kilometer line to over 38 kilometers of track at present. But investment in both extensions were undertaken by the government, not the BTS, although it was granted the operating and maintenance contracts.
Bangkok Mass Transit System PLC, the BTS subsidiary that runs the Green Line, earlier this year signed a contract to purchase 46 new train cars worth 11 billion baht (US$330,000) from Germany’s Siemens AG (24 cars) and China’s CRRC Changchun Railways Vehicles Co (24 cars) to service another extension of the eastern line to neighboring Samut Prakan province scheduled to open in December.
Another extension of the Green Line’s northern route is also under construction and due to be completed by 2021, by which time the Green Line will be 70 kilometers long.
BTS’s expansion plans do not end with the Green Line, however. In December 2016, the BSR Joint Venture, in which BTS holds 75%, won concessions to run two new monorail systems known as the Pink Line and Yellow Line under the government’s new fast-tracked Public Private Partnership (PPP) scheme.
Under the PPP arrangement, the government has essentially agreed to invest about 50 billion baht (US$1.5 billion) in the construction of each line, and left BTS and its joint venture partners – Sino-Thai Engineering and Construction and Ratchburi Electricity Generation Holding – to pick up the rest of the costs and handle maintenance and operations.
The two monorails, both of which will hook up to the Green Line, will expand BTS’s Bangkok rail network to about 135 kilometers by the time they are completed within five years.
To help finance investments in the Pink and Yellow lines, the BTSC sold its future revenues in the original Green Line to the BTS Rail Mass Transit Growth Infrastructure Fund, in which the BTSC holds a 30% stake.
The bids on the Pink and Yellow lines were delayed by several years, so the BTSC has been issuing generous dividends since 2013, depleting its cash reserves, and has had to launch two tranches of bonds worth 29 billion baht (US$870 million) since 2016 to finance its recent expansions.
In April, Fitch Credit Rating Agency downgraded BTS from “A” to “A-“ with “a negative outlook” because of its higher leveraging.
“The reason we downgraded them was because they need to inject money in this joint venture to develop the Pink and Yellow lines, and compared with their cash flow, their leverage has increased,” said Obboon Thirachit, an analyst at Fitch Credit Ratings, which no longer rates BTS.
The downgrade was not a reflection of the riskiness of the new projects, so much as of the higher leveraging, Obboon said. “Mass transit is actually a good business. When they ramp up the revenues it is very stable and I think another key revenue generator that will benefit from the new projects is advertising.”
BTS’s advertising unit is actually the second biggest earner after the mass transit operations.
And nowadays BTS is definitely profitable. Its revenues for the fiscal year ending March 31 were 14.1 billion baht (US$420 million), yielding a net profit of 4.4 billion baht ($130 million), up 120% year-on-year.
BTS is also looking to the 224 billion baht (US$6.75 billion) high-speed rail link PPP project that will link U-Tapao airport in Rayong province to Suvarnabhumi and Don Mueang, Bangkok’s two international airports.
BTS’s Anat acknowledged that the group is moving into riskier territory in the near future with the Pink and Yellow lines, and other project possibilities. “No opportunity is risk free,” he said. “But these kind of projects don’t come up every year so if you pass it by…”
But one clear lesson learned from the BTS experience is never to go it alone in a mass transit project. “Without PPPs, a country cannot develop. Both sides have to take risks, but it’s up to the government to come up with a good risk-sharing model.”