Looking further afield: Opportunities abroad are increasingly attracting Thai energy companies

Thai energy companies – utilities and oil companies alike – have been making significant and aggressive moves outside of Thailand’s borders. This activity has been driven by a number of reasons, the simplest being that it is becoming increasing difficult to work at home. Companies are facing growing environmental restrictions and activism, and are finding that power plants, mines and hydrocarbons facilities may be easier to develop and operate in other countries.

More broadly, Thai companies are going where the resources are most easily available. Thailand is running out of natural gas, and it only has limited reserves of both coal and oil. The country needs energy assets for the future, and therefore efforts to secure these are increasingly looking abroad. Indeed, some of the companies are going very far afield in order to diversify their holdings and hedge against regional risk.

PTT, the government-controlled oil and gas enterprise, and its subsidiary, PTT Exploration and Production (PTTEP), have been particularly active. In August 2012, PTT made a bid to purchase the remaining shares of Sakari Resources that it did not already own for $960m, and by February 2013, PTT had raised its ownership to nearly 95%. Sakari Resources has two Indonesian coal mines and a Singapore-based trading company. In 2012, PTTEP purchased UK-based Cove Energy for $1.9bn, giving the Thai company a stake in Mozambique natural gas fields, and, in November 2013, PTTEP and Indonesia's Pertamina jointly acquired Hess Corporation's offshore oil and gas assets in Indonesia, which include 75% of the Pangkah project and 23% of Natuna Sea A project. The former has oil and natural gas reserves equal to 110m barrels of oil equivalent (boe); while the latter holds 209m boe.

Prior Activity

The group has been making large acquisitions for years. In 2010, PTTEP bought 40% of the Kai Kos Dehseh Oil Sands Project in Canada from Statoil, the Norwegian company. It was the largest ever acquisition by a Thai company. In 2009, the company purchased Coogee Resources, an Australian oil and gas company with interests in the Timor Sea. PTT and subsidiaries already have assets now in over 14 countries, and in early 2013 the group said it would continue buying. It said it would be spending nearly $15bn on capital expenditures between 2013 and 2017, and that 15% of this would be going toward acquisitions. The company has also commented that its preferred targets are palm oil plantations and power plants, and it has indicated that it is currently eyeing assets in Europe and Columbia, which has the world's sixth-largest coal reserves.

PTT’s proactive stance is being driven by both commercial reasons and national interests. It is helping, as a state company, to guarantee Thailand's access to resources going forward. At the same time, it is working to find assets that will allow it to profit in the future. In order to fund its aggressive expansion, the company has been forced to undertake some very large financings. In December 2012, PTTEP sold $3bn of shares in Thailand's largest equity sale after its debtto-equity ratio rose to 70% following the Cove Energy acquisition. In early 2013, the company said it was considering the issue of a bond.

Measured Progress 

In late 2013 it seemed that the buying binge was coming to an end. While there was no indication that PTT or its subsidiary was concerned about what they had purchased, the parent company said it was reconsidering its expansion plan and was cutting its 2013 investment budget by almost 50%. PTT blamed slowing global growth and added that overseas acquisitions would be the main target of its reduced capital expenditures.

All indications are that this is a pause rather than a halt. The company said later in the year that it was considering an initial public offering of its power generation subsidiary, selling 25-30% of the company on the Stock Exchange of Thailand, so that it can invest in more overseas assets. PTT also stated that, sometime in 2014, it is planning to reduce its stake in Star Petroleum Refining, in which it currently owns 36%.

Utility Providers

Thailand's utilities, meanwhile, are actively working to build power capacity in neighbouring countries. Due to domestic resistance to coal, nuclear and hydropower, sites and acquisition targets in Myanmar, Malaysia, Cambodia and Laos are being considered. These are increasingly being pursued for more than just power purchase agreements, and Thai firms are getting more involved, and more heavily invested, in a wider range of projects.

In late 2013, Mitsubishi Corporation, the Japanese general trading company, announced that it had formed a venture with the Electricity Generating Authority of Thailand (EGAT) and Italian-Thai Development to build a massive power plant in the Dawei Special Economic Zone. The plant would have been 30% owned by the Japanese company, 50% by the Thai utility and 20% by the Italian-Thai partnership. However, in February 2014, the Myanmar Ministry of Energy approved a 500-MW plan by Thailand-based Andaman Power and Utility Company to build a comparable project at the site, which will be powered by natural gas from the offshore Zawtika field.

The moving of dirty power plant capacity to neighbouring countries has come under heavy criticism in the past. In 2012, an earlier Dawei power plant was abruptly cancelled following criticism of the project on environmental grounds. The 4000-MW, coal-fired plant was to be developed by Italian-Thai Development and Ratchaburi Electricity Generating Holding. Opposition to power projects in Myanmar because of environmental concerns has become something of a trend in recent years: in 2011, the Myanmar government suspended the $3.6bn Chinese-backed Myitsone dam project over environmental and social concerns.

Despite the previous difficulties, in late 2013, it seems Thailand and Myanmar were beginning to work more closely and constructively on establishing a framework for power generation in the latter for export to the former. The countries were discussing 10,000 MW of electricity trade, including 1000 MW coming from the My Tong hydroelectricity project. EGAT'S BIG PLANS: EGAT has been particularly active in a number of countries, and the expectation is that it will continue making investments and acquisitions for some time. In 2013 it received approval to build and run a $2.3bn coal-fired plant in Vietnam. The plant will have a 1200-MW capacity to start, which can potentially be upgraded to 3600 MW. Construction is scheduled to begin in 2015, and the plant should be operational by 2018. Electricity from the site will be consumed domestically, but some may be sold to Thailand via Laos. According to a report in the Bangkok Post, EGAT is also in talks to acquire 49% of a plant in Vung Ang. The project is rated at 1200 MW and is scheduled to be up and running in 2015.

EGAT has a growing hydro portfolio as well. In Myanmar, it is involved in the 1360-MW Hutgyi hydroelectric plant. In Laos, EGAT owns 30% of the 260-MW Nam Ngiep 1 hydropower plant, with Kansai Electric owning 45% and Electricite du Laos 25%. The project is expected to be operational by 2019.

According to a Bangkok Post report, EGAT is embarking on a BT66.9bn ($2.2bn) capital expenditure programme, and many of the investments made will involve power in the region. The company says that it is active in a number of projects at one time in order to diversify its risks, as approvals can take time. It hopes, however, that the regulations are reformed so that international investments can be made faster.

Limitations

Many Thai companies have been investing overseas, given the strength of the baht and the fact that some of the larger groups have outgrown their home market. However, the economic argument for buying overseas to avoid environmental troubles at home is becoming increasingly weak. Grassroots activism is growing more common, and environmental organisations are increasingly becoming global in scale. Thai companies need to be especially carefully in Myanmar where electrification rates are low. If they export power and leave pollution, they can expect problems in the future from residents and politicians.

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The Report: Thailand 2014

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