Curbing industrial growth can work for Thailand

Thanong Khanthong, The Nation 2 Oct 09;

On Wednesday, the Cabinet ministers discussed a plan for industrial development in the South before deciding to take a whole new look at it - because the Eastern Seaboard has been running into legal complications.

On Tuesday, the Central Administrative Court ordered 76 industrial projects at the nation's largest industrial estate to suspend operations temporarily, pending an investigation into whether they are operating legally.

Environmental groups and local people in Rayong have filed complaints against state agencies and several ministries for failing to properly issue operating licenses at the Map Ta Phut Industrial Estate. The value of the 76 projects is estimated at Bt330 billion.

At the Cabinet meeting, Staporn Kavitanont, an adviser to Prime Minister Abhisit Vejjajiva, expressed his reservations about the proposed industrial development in the South. He was quoted as saying, "Enough is enough."

It should be noted that Staporn was the former secretary-general of the Board of Investment, and played a key role in promoting industrialisation in Thailand during the 1990s. Now he has changed his view, coming to believe that the South, which is rich in natural resources and tourism opportunities, should be left alone rather than encroached upon by heavy industries.

Abhisit concurred, in a way. The Cabinet ended up deciding that a development plan for industrialisation in the South should be put on hold, pending a complete review.

Recently, Korbsak Sabhavasu, the deputy prime minister, has said he is not sure whether it is good for Thailand to continue to attract investment from heavy industries. But he is still half-hearted in his opinion, believing that the manufacturing sector continues to be the engine of Thai economic growth - although Thailand needs to focus more on the agricultural sector during this time of global economic turmoil.

According to SCB Securities, three companies under the PTT group will be affected by the court order - PTT's gas separation plant number 6, PTT Chemical's 50ktpa HDPE expansion, and PTT Aromatics and Refining's condensate residue splitter (CRS).

"Other projects, while not on the 76-project list, might also face risk of project delay if the court order expands beyond the initial 76. Glow Energy should not be affected directly since its project on the list does not exist, since it failed to win the bid. All three companies have projects that have already received clearance from the environmental inspection [process] but not operating licenses," the research report said.

At this point, we need a serious discussion on Thailand's industrial policy. It is time that we walked away from heavy industries and embraced light industries and agriculture instead.

Bangkok is now hosting a 12-day forum on global warming, which will lay the groundwork for a further meeting in Barcelona and a final pact in Copenhagen later this year. The global agreement on measures to arrest global warming will replace the Kyoto Protocol, which will expire in 2012.

If Thailand is to contribute to the new round of global warming talks, we should seriously review all new investment plans in heavy industries and impose stringent environmental standards on the existing industries.

Secondly, the global economic turmoil will continue for the foreseeable future. Investment in export-oriented heavy industries will turn sour if the global recovery is further stalled. There might be some nascent recovery, but we could slip back into another recession at any time. The world is now suffering from over-capacity. Factories are holding on to dead stock. It would be unwise to pursue further heavy-industry investment.

Thirdly, the course of industrialisation naturally suffers a tragic end. Look at Japan Inc as a case in point. Decades of industrialisation turned Japan into the world's second largest economy. But Japan is now a sick patient, with deficit problems, unsustainable public debt and growing public nervousness about social and health care plans. No matter how much money the Japanese make, it never seems to be enough, as costs and inflation also keep on rising in tandem.

Finally, if Thailand were to turn back to supporting agriculture - at least by setting a target to double output to 20 per cent of the gross domestic product - it would be able to balance the risk from the economic turmoil. In the worst scenario, agriculture will save Thailand - not cars and machine parts, electronic products or petrochemical products.

That being said, it's time for Thailand to embrace a shift in our policy by taming industrialisation and promoting agriculture and renewable energy instead.

Environmental ruling threatens Thai growth
Tim Johnston, Financial Times 3 Oct 09;

A Thai court decision to suspend 76 investment projects worth Bt330bn ($9.89bn, €6.78bn, £6.19bn) on the grounds that they might have violated environmental and health protection laws has forced the government to scramble to limit the damage to investor confidence.

The court's temporary injunction, which was handed down late on Tuesday night, could add an increased and toxic element of regulatory risk to an investment climate already poisoned by political uncertainty unless the case is resolved swiftly.

The blocked projects are in and around the Map Ta Phut industrial estate in Rayong province south-east of Bangkok. The court found that the government had failed to carry out a full assessment of the environmental and health impacts of the projects, which are mainly in petrochemicals and energy, before issuing licences.

"For investors, this incident again highlights unanticipated regulatory risk in Thailand. For Thai/foreign corporates, it is no longer clear that going through the investment approval procedures set by the government will be protected by the courts," analysts at Phatra Securities in Bangkok said in a research note.

"The problem now in Thailand is that seemingly any infraction is enough for some projects to be potentially found with legal impediments and the threshold set is very low. This could affect Thailand's medium-term growth rate."

Phatra suggested that the shortest route to a solution might be negotiations with the non-governmental organisation and locals who brought the case to the court.

"We have no intention of making them scrap the whole project, we just want them to follow the law," said Veera Chomphan, one of the lawyers who bought the original case.

Abhisit Vejjajiva, the prime minister, has moved fast to minimise the damage wrought by the case, instructing ministers to appeal against the decision, a move that PTT, the majority state-owned oil company, has said it is also considering. PTT has 25 projects in the Map Ta Phut area, including a $780m gas separation plant that is supposed to come on stream in the first quarter of next year and petrochemical feedstock plants. A spokeswoman said on Thursday that PTT is still proceeding with construction pending instructions from either the court or the government.

SCG Chemicals, part of Siam Cement Group, Thailand's biggest industrial conglomerate, is building a naphtha cracker and related plants at Map Ta Phut which it was intending to bring on stream between late 2009 and 2011. The group said it was working with the government and concerned parties to find a solution.

* Thailand looks set to meet a target of Bt400bn in investment applications this year, helped by a stimulus package and nascent economic recovery, a senior official said yesterday, Reuters reports .

Investment applications in south-east Asia's second biggest economy declined about 12 per cent in the first eight months of this year to about Bt246bn from the year-earlier period. Thailand has seen a pick-up in private investment in recent months, largely in the auto and electronic sectors, he added.