Interview: Polpat Karnasuta

How have Thai contractors reliant on government projects managed the shortage of work being released in 2015 and previous years?

POLPAT KARNASUTA: 2015 saw an increased volume of construction work, up from 2014, as the government was able to successfully allocate some of the budget for public projects to move ahead, but limitations do remain in place. At the moment, the high level of demand for construction in Thailand is evident in nearly all sectors. Thailand has lagged behind some of our regional neighbours with whom we are competing for investment on a number of infrastructure projects – there is high demand for construction work on transportation, power plants, wastewater treatment plants and other infrastructure. Demand has been pent up for several years, and many industries would stand to benefit from bolstered public works.

Our current government is well aware of this need, and it is beginning to push through several of the medium-sized and larger projects from initiatives that were outlined a few years ago as being in the interest of the country’s development and have been put on hold. One thing that contractors hope for is that the budget allocation will be evenly spread around rather than fully committed to a few large projects such as the railroad expansion plan.

The volume of work for contractors tends to ebb and flow, and while many were hopeful that 2015 would be a positive year for the construction industry, expectations were not necessarily met. A scarcity in projects results in increased competition and companies taking work at lower margins than usual, as all players are attempting to use up their committed capital and labour capacity. We are once again optimistic that 2016 will see further large-scale projects pushed through, so that capacity can be built up and margins can rise. Thus, the major risk currently facing contractors, especially those involved in government infrastructure works, is government spending plans and delays, rather than other challenges typically associated with the industry such as raw material prices, labour costs and payment collections.

What competitive regional advantages do Thai contractors have over international players?

KARNASUTA: In the neighbouring countries of Myanmar, Laos and Cambodia, their local firms might find it challenging to meet the increasing demand and requirements of large-scale projects. There are both opportunities and challenges in these fast-growing economies. In Laos, for example, many projects are now being released under the public-private partnership format, especially in the hydropower segment. Thai contractors are eager to gain access to this work, not only to hedge for shortages in local work, but also because these projects directly benefit Thailand, seeing as we can then import some of the excess power being created. While Myanmar is an intriguing market, the country has only recently opened itself more to foreign contractors, so centrally important factors such as transparency and equity remain unclear.

In terms of competition, there is great interest from countries both within and outside of ASEAN to take part in this period of rapid development, but Thailand maintains its advantages due to competitive costs and its transport and logistics linkages. Major competition comes from the Chinese, while Japanese and South Korean companies are also eager to play a role. Yet they tend to join with Thai partners as sub-contractors or joint venture participants to take advantage of the regional expertise that Thailand can offer. Even more to Thailand’s advantage is the fact that we are a part of the ASEAN Economic Community, whose unified production base, freely moving goods and skilled labour boosts our competitiveness against those from outside the bloc, while our low interest rates in comparison with other ASEAN economies boosts us within the bloc itself.