That the devil is in the details has rarely been exemplified better than by Thailand’s proclamation that it planned to enter the high-speed rail (HSR) business in a hurry. The announced projects include four lines that connect Bangkok with the northern city of Chiang Mai, the Laotian border, the industrialised eastern seaboard and Malaysia. The trains would travel at 250 km per hour, cutting the travel time from Bangkok to northern Thailand by two-thirds. Instead of eating up half a day, the journey would take four hours.
A frank presentation used by the Ministry of Transport (MoT) to explain the government’s plan to overhaul the country’s infrastructure opened with the admission that 2004-13 should be labelled “the lost decade”. Punctuated by natural and manmade disasters, the period saw a major slowdown in foreign direct investment (FDI). While Thailand’s record of attracting FDI averaged 5% over those 10 years, the performances of Malaysia and Singapore were double that figure and Indonesia was the star of the region with a 34% compound annual growth rate.
In a document prepared for explaining its “Thailand Infrastructure Future Plan” to the members of the American Chamber of Commerce in Bangkok, the MoT said that not a single new major infrastructure project had been approved in those years. So the catalogue of ambitious plans in essence projected a programme to transform the country in just seven years with a rail revolution and a whole infrastructure plan costing BT2.27trn ($74.23bn).
High-Speed Rail
The aspect of the plan to join all corners of the country with trains travelling at up to 250 km per hour was the excitingly simple and cost-saving assumption that the HSR would be built by the side of the existing track. The Thai railway system is based on narrow gauge track which is unsuitable for very fast trains. However, the reason for routing the new system by the side of the old one was to eliminate both the expense and the red tape of acquiring new land for the HSR. State Railway of Thailand (SRT) already owned the land by the side of its existing track and therefore any problems in this respect were in essence already solved. However, as a report by Credit Suisse pointed out, that was not quite the case.
According to a long and very detailed research document issued by Credit Suisse in 2013, the plan to use land by the side of current rails is flawed because there are too many sharp curves, which would not allow the new trains to get round them at speed.
Adjusting the route for the standard-gauge HSR would involve much more tunnelling than had originally been envisaged and therefore threatened to escalate the cost of what is already the single biggest part of the programme. Establishing the 1447-km HSR network would swallow 39.2% of the total sum allotted, or BT783.23bn ($2.7bn), according to the MoT presentation. Danucha Pichayanan, director of the Infrastructure Project Office, told OBG that government planners were aware that some changes to the outline plan were needed.
“In the areas where there are tight curves, they will need to acquire some land,” he said. “How much land is needed is still under study by the Office of Transport and Traffic Policy and Planning.” In fact, there were other fine details under study as well.
Details Of The Plan
“The cost figure is an estimate from the master plan and we need to do a detailed study,” Pichayanan told OBG. “The investment figure here might be increased by 30% because of tunnelling, land acquisition or the cost of materials at the time of building. All the rest of the plan is based on studies and there are around BT9bn ($294.3m) built in as a contingency fund.” In any case seven years would probably be too short to complete the system, especially in view of the need for public hearings to address any environmental issues. “Ten years is a more realistic timeframe,” he added. With a financing delay (see below), even 10 years might be optimistic. Chula Sukmanop, inspector general at the MoT, is another official concerned with details. “Around 30% of the environment round the track has to be changed for trains that travel at 250 km per hour,” he told OBG. “In some areas in the north we will have to tunnel which means less land acquisition but costs a lot of money.” The original plan called for one tunnel. Now there could be around 14-15 km of tunnels for the northwest line to Chiang Mai.
Economics
In discussions on the economics of the whole system there are two distinct schools of thought. The first – based on viewing HSR purely as a transport system – comes down heavily on the negative aspects of the numbers. The Credit Suisse report says, “The money spent will almost certainly exceed the efficiency returns by a large degree. Because it accounts for about half of total connectivity expenditure, the drag on overall structural economic benefits could be considerable.” Credit Suisse pointed out that in almost every country where HSR operates the government pays a subsidy. On simple economics the scheme did not make sense. “If we take profitability as the acid test of an infrastructure project’s structural economic impact, almost all high-speed rail line construction globally represents a misallocation of resources,” said the report. “In other words, the money would typically be better spent on roads or airports, if GDP alone were considered.” From this perspective there was greater support even in some government offices for modernisation of the existing rail system, which was seen as having a greater cost benefits (see analysis).
Chula was very open about the economics of operating HSR. “The main source of passengers will be transferring those who currently use air transport,” he told OBG. “Also, we will base the fares on operating costs and not build in recovery of the infrastructure costs.” Credit Suisse had been doing those sums for itself. Its report counted the number of flights from Bangkok to the main destinations on HSR, including Chiang Mai, Hua Hin and Rayong. A 75% load factor on the flights would produce just over 12,000 passengers a day between Bangkok and the five main stops on the planned high-speed lines.
At this point the mathematics becomes interesting and was picked up by politicians who opposed the government’s plans and funding. If half the current air passengers switched to HSR, paying the same as a discount airline ticket, the rail network would receive BT3.7bn ($121m) a year in revenues. At that rate, says Credit Suisse, it would take 265 years to recoup the cost of building the network.
“These calculations, moreover, fail to include the high costs of rolling stock, maintenance and operating expenses,” added the report. “Clearly, on our calculations, high-speed rail in Thailand will require massive subsidies.” Given a government decision not to seek capital investment cost recovery from HSR fares, the numbers become irrelevant anyway.
The Other Side
In fact, establishing an economically viable HSR system seems not to be on anyone’s mind. Ruth Banomyong, a transport consultant and lecturer at Thammasat University, told OBG, “High-speed trains are not just about fast trains. It is about setting up economic poles and developing areas around stations.” In fact, he was in no doubt that operating the trains will lose money. “The question is, can they make more money from developing real estate round the country on the routes?” Ruth asked. “At the end of the day maybe it is more a real estate deal than a transport issue,” he said. Chula added to the view that HSR was a means, not an end. “Alongside the high-speed trains we will build larger cities in the provinces, to create critical mass for job creation for example,” he said. “High-speed trains will become a driver of growth, not just for transport.”
The Credit Suisse researchers see life differently. Successful HSR lines generally require three supporting factors – multiple urban centres, high per capita incomes and potential routes within a 100-500 km radius, they say, adding that Thailand looks weak on all counts, as well as not standing up to comparison with other countries. Fast trains connect Tokyo and Osaka, Beijing and Shanghai, Madrid and Barcelona, Frankfurt and Munich, and Paris and Brussels, among others, said the report. “Thailand, on the other hand, has no city with more than around 600,000 people to connect to Bangkok,” it noted. The researchers also considered the most appealing destinations, Chiang Mai, Hat Yai and even Udon Thani, were too far from Bangkok to attract large numbers of passengers. Some in the government acknowledge that HSR will require sizable subsidies but argue that the objective is to promote provincial development, not maximise efficiency. Credit Suisse is not confident of success in this area either. “Academic studies in Europe have shown that high-speed systems do not disperse development from primary cities to the provinces, but instead shift wealth within the provinces to cities along the train lines,” the company says.
Translated into Thai terms, this would mean that Udon Thani, on the planned north-eastern line, would grow at the expense of similarly sized Ubon Ratchathani. In any case the debate was academic to Credit Suisse. “If too few passengers ride the trains – as we consider likely – very little impact on development patterns of any sort will be felt,” it concluded.
Financing
The government had sought to finance the infrastructure package by obtaining authorisation to borrow the BT2.27trn ($74.23bn) estimated to be the price of the whole package. This would have been outside the budget and saved the need to debate annually whatever tranche was needed for the following 12 months. Although a bill went successfully through parliament, the Constitutional Court ruled the financing plan was illegal, and indecisive elections that reduced the cabinet to the status of caretaker effectively slammed the brakes on the infrastructure programme. Given the need for wholesale investment in the rail network irrespective of the government or financing mechanism there seems little doubt that the programme will reappear, maybe even later in 2014. Ruth told OBG, “There was no progress on getting the financing through the normal budget because there was always infighting. That is why the government opted for a different method of financing.”
The prospect of the infrastructure programme saw some land prices triple in value in towns on the Laotian border such as Mukdahan, Nong Khai and Nakhon Phanom although press reports at the beginning of 2014 said that interest in buying had almost dried up until the programme was restarted.
The underlying economic aims of the plans include reducing the ratio of logistics costs to GDP by 2 percentage points from its current 15.2%, raising the speed of non-HSR trains from 60 km per hour for passengers to 100 km per hour and from 39 km per hour to 60 km per hour for freight, and increasing the percentage of freight carried by rail from 2.5% to 5%.
Others goals are to cut the proportion of private vehicles using the road between provinces from 59% to 40%, increase the share of water transport from 12% to 18%, that of mass transit in Bangkok from 5% to 30% and the number of rail passengers from around 41m a year to 100m. Not least is an energy saving worth at least BT100bn ($3.3bn) a year.
Land Bank
Part of the process of converting at least the mind-set of the SRT from its established position of loss-making state-owned enterprise (SOE) with mounting debts that can never be paid off (see analysis) started towards the end of 2013. Transport Minister Chadchart Suttipunt ordered the SOE to tap more revenue sources such as its former hotel real estate and large tracts of land standing idle and not needed for HRS. Chadchart suggested, for example, that the former Ratchathani Hotel at Hua Lamphong station in Bangkok would make more money if it were converted into a boutique hotel. SRT owned railway hotels, mostly run down, in several places and in the 1990s decided to off-load its hotel properties. It leased one hotel and still has three that were closed or used for other purposes. It also has a substantial land bank across the country from an area in Chiang Mai opposite the railway station surrounded by commercial developments to a big plot in the Makkasan district of Bangkok. The idea is to lease the unused land to help pay for the substantial upgrade SRT needs.
Airports
Several of the country’s airports suffer from a problem SRT might like to have – too many passengers for the facilities to handle comfortably. Even after the AirAsia operations were moved out of Suvarnabhumi Airport to Don Mueang, the capital’s main airport is still congested.
“It has notional handling for 45m passengers but the actual number is 53m,” Pichayanan told OBG. “The plan for a midfield terminal has been in existence for three years and we pushed Airports of Thailand very hard to implement this project.” Like many issues in Thai transport there has been frequent discussion of the need for a third runway to help process the numbers. However, a third runway may be difficult to get through the environmental approval process and may not yet be needed anyway. The airport is able to handle up to 76 landings or takeoffs an hour but its current maximum is around 10 below that figure and then only for a few hours a day.
Considering Another Runway
Chula said there were now attempts to build a spare runway at the airport for emergencies and to use when either of the other two were being maintained. “We think it could be very difficult to get a permanent third runway through an environmental impact assessment (EIA),” Chula told OBG. “A spare runway doesn’t need the same level and depth of EIA.” He added, “They have now started work on a new midfield terminal. It is getting difficult to move around in the terminal and there are plans to use the midfield as a domestic terminal but nothing has been 100% decided.”
Transport consultant Ruth told OBG, “The peak period per day at Suvarnabhumi is only five hours, so basically there is no need for a third runway.” In any case, he added, any current land shortages had been caused by past delays. “Suvarnabhumi has been a very long project and the initial space would have been enough for four runways,” Ruth added. “But people started to build houses next door to it.”
Pichayanan said to get an independent third runway, the owner, Airports of Thailand, would need to acquire an extra 9000 rai (1440 ha) of land and would also face a possible environmental problem if they built a runway 150 metres closer to low-rise dwellings. “A new noise contour may well involve paying more compensation and more insulation,” he told OBG.
Less than two years after re-opening, Don Mueang International Airport is also facing overcrowding problems. The 10.5m-capacity airport, which went back into service to help relieve congestion at Suvarnabhumi, is handling 16m travellers a year.
Renovation of Don Mueang’s second terminal is expected to boost capacity to at least 20m. AirAsia serves all its regional points from Don Mueang and every domestic Thai airline is based there. Only THAI and Bangkok Airways run their domestic networks from Suvarnabhumi, to be able provide connecting services for their international flights.
Connectivity between the two Bangkok airports is slow at best. They will be linked by rail but even then fast connections from one airport to the other will be unlikely. When complete in around three years, the Red Line will provide a link for passengers but they will need to pick up and transfer their own luggage.
Ports
In theory Bangkok Port is set to be closed and all business transferred to the more modern – and more efficient – Laem Chabang Port. However, the likelihood of that happening in the foreseeable future is remote for several reasons, not least the land connectivity between Laem Chabang and Bangkok.
Although the rail link is the subject of a double-tracking upgrade, there is still a shortage of locomotives to provide both a more frequent and efficient service. Only around one-third of the containers offloaded in Laem Chabang but intended for the capital are transferred by rail.
Two others reasons not only for the continuance, and even expansion, of Bangkok Port are that closure and redevelopment of the land occupied by the port would displace people living in the immediate vicinity of the port. Pichayanan told OBG, “There are a lot of communities living in this area and although much of it is technically a slum and there is a drug problem, moving them all away would cause widescale social disruption. Many of the people who live there also have jobs as unskilled labourers in the port.” The Port Authority of Thailand (PAT) is the operator of Bangkok Port but handles only the concession agreements at Laem Chabang. Ruth said that another reason for keeping the Bangkok facility open was that closure would deprive it of the money to keep the pension fund going. “The Ministry of Finance is the major shareholder in the Port of Bangkok,” said Ruth. “Officially the port is allowed to do only 1m twenty-foot equivalent units a year but now it is doing more, around 1.4m-1.5m, because the Ministry of Finance needs the income.” Dennis Berkompas, managing director of the PB shipping agency, and a veteran of the business in Bangkok, also does not believe the port will be phased out. “Feeders continue to call into Bangkok Port and it is a very lucrative place to do business,” he told OBG. At the same time, said Berkompas, the location made it a very valuable piece of real estate that one day could be developed into a mixture of hotels, residential and retail while removing pollution and introducing a much more pleasant environment.
“Historically the equipment there has not been well maintained and is not very efficient,” added Berkompas. “However, I don’t think it would be a good idea for Bangkok Port to close until there is a good rail link with Laem Chabang.”
Another factor sometimes cited that helps determine it stays open is the strength of the labour unions.
However, Berkompas, like Pichayanan, sees the social problem of displacing thousands of people as far more significant. “Most of the workers inside the port live on the other side of the wall in the slum area which is still part of PAT property,” said Berkompas. “A deal could perhaps be struck with the union but the problem is how to find somewhere new to live for all the people whose homes are in that area.”
Simon Davies, director of Jardine Shipping Services in Thailand, told OBG, “Bangkok Port is the subject of much debate in the shipping community, the real estate sector and the government. It has limitations on draught and limitations on container throughput but it does function reasonably well these days.”
Berkompas believes a move to Laem Chabang would result in cheaper and more efficient port services. However, although there are plans to extend Laem Chabang, he said expansion was not necessary at the moment. “If the whole of the presently developed facility is made operational it would serve the sector’s needs and the port could be expanded later,” he told OBG. Looking ahead perhaps five years, Davies could see the need to expand ro-ro facilities, especially with the expansion of original equipment manufacturing.
Shippers’ complaints on container delivery to Bangkok were not that the connection was single track but that they could not plan because there was no timetable. Double tracking has now been done but there is still a shortage of locomotives. SRT has signed a contract for 20 new locomotives to be used solely for freight and, according to Jardine’s Davies, even now there has been some improvement. One problem is that the link is narrow-gauge which restricts the number of containers that can be moved at any given time to around 30, according to Berkompas. However, to replace the entire link with standard-gauge trains and rolling stock would not only increase the upgrade cost but also extend the time when double tracking would become available.
Dawei
That frequent mention of a megaproject at Dawei in Myanmar has disappeared for the time being surprises no one in the industry.
Davies recalled there was talk of Laem Chabang Port long before it became a reality. The plan for Dawei was to establish a deep sea port with an allied industrial complex next door so that Dawei could become a receiver of energy and an exporter of petrochemicals products. Davies was philosophical about the idea. “Dawei has good access to deep water, faces India and the project will happen eventually.”
Berkompas was of like mind. “This is a good concept for Myanmar because the country is rich in natural resources that cater to petrochemicals,” he said. A deep water seaport would allow big ships to bring in gas or oil for refining into finished products. Berkompas dismissed the idea of seeing it used to unload containers for them to be moved by train across to Laem Chabang only for another ship to load them. “This is just not going to happen,” he said. “Moving a container overland in Thailand is quite expensive.”
ASEAN Integration
The establishment of the ASEAN Economic Community (AEC) at the end of 2015 is also the start of a race to demonstrate which members are more prepared than others. More than 55 years after the Treaty of Rome established a community of the original six members of the EU, there is still vigorous debate and occasional disagreement. There is no reason to believe AEC will be much different given the vast economic and cultural disparities among the 10 members. However, there has been much effort to try to prepare for the sea change needed. Some basic agreements affecting transport issues are already in place. Thai driving licences are valid in member nations and trucks and buses are allowed to operate in neighbouring countries without a vehicle inspection. The Land Transport Department is opening a product transfer centre in Chiang Rai and building goods transport depots in 15 major cities to position Thailand as the regional transport hub. Airlines too face increased competition with the liberalisation of air routes that allow every airline in every country to serve all the capital cities. This will put extra pressure on airports, especially those that are already stretched for capacity. Another race already in progress is that to be seen as the natural hub for the community. Thailand has not only its location at the centre of the AEC as an advantage over Singapore or Jakarta but also the fact that it has 123 more flights connecting Cambodia, Laos, Myanmar and Vietnam than Singapore. Shipping too may benefit.
Chatchawan Ghettalae, general manager of TIPS, a Laem Chabang container terminal operator, told OBG, “Thailand is well positioned to build on the development of the AEC. Consequently, we can expect shipping trade to increase through Laem Chabang as well as Bangkok Port in the medium term.”
Outlook
Predicting the time lag in Thailand between the announcement of an infrastructure plan and its implementation is both a frustrating and pointless exercise. Suvarnabhumi Airport opened in 2006: it had been first worked on in the 1960s.
Still, there is greater urgency to put the infrastructure programme into effect, especially the non-HRS railway improvements. However, even if alternative financing were found immediately, it is unlikely that the programme would be complete until the early 2020s, since 2019 or 2020 as a deadline was a triumph of optimism over realism.
If Thailand wants to use its geographic advantage at the heart of ASEAN to be a pivotal player when the AEC comes into effect – it is currently scheduled for December 2015 – then it needs to instil confidence in its partners. Attitude, intention and decisive action would demonstrate to other ASEAN states what could be achieved. Certainly the time is too short to show many concrete results. It is not too short a time to lay down some impressive markers for the future.
Vast improvements to neglected areas of the country’s infrastructure are also important for Thailand’s future economic wellbeing, irrespective of the AEC.
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