Archive for August 11th, 2011

August 11, 2011

THAI-LAO LIGNITE: Laos ordered to pay Bt1.7 bn in damages

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By Nalin Viboonchart
The Nation
Published on August 9, 2011

The US Federal Court in New York recently confirmed a Malaysian arbitration award in a dispute between Thai-Lao Lignite and the Laotian government over the Hongsa power-plant project, requiring Laos to pay damages of US$56 million (Bt1.7 billion) plus interest.

“Although the New York court’s ruling is not the end of the dispute and the government of Laos can appeal, we hope that the government will fulfil the obligation and pay for the claim,” said James Berger, a lawyer from Paul, Hastings, Janofsky & Walker, representing the company.

The 1.9-gigawatt Hongsa power plant as well as Banpu and Ratchaburi Generating Holding (Ratch), which own 40 per cent each of the project, will not be affected by the court’s ruling, an analyst said yesterday.

Thai-Lao Lignite’s concession for the Hongsa project was cancelled by the Laotian government after construction could not meet the agreement. Banpu took over the concession.

Berger said the company had submitted a letter to the Laotian government asking whether it intended to pay the damages voluntarily, but there has been no response.

The US court judgement is promptly enforceable. If Laos does not follow the ruling, Thai-Lao Lignite will be forced to commence proceedings to execute the judgement.

The damage claim plus interest so far adds up to $65 million, Berger said.

An analyst said the court’s ruling would not affect the Bt94-billion Hongsa power plant or Banpu’s and Ratch’s operations. Construction of the plant is on track and it is expected to commence generating electricity in 2013.

Thai-Lao Lignite also sued Banpu in 2007, claiming that Banpu and its subsidiaries gained access to information on the Hongsa coal-mine concession and won the project after the Laotian government terminated the concession with Thai-Lao Lignite, which then asked for damages of Bt63.5 billion.

However, Thai-Lao Lignite was blamed by another report for not being able to proceed with development, leading to the Lao government’s decision to terminate the concession.

A Thai lawyer for the plaintiff said the lawsuit against Banpu would take more time to reach a resolution.

The hearings from the plaintiff side are expected to be wrapped up next month, then the court will start hearings with the defendant. Thai-Lao Lignite had asked Banpu to compromise but they could not reach an agreement.

Chanin Vongkusolkit, chief executive officer of Banpu, has said the Hongsa project will not be interrupted by the litigation, as it is being developed by Hongsa Power Co, not Banpu alone.

Looking beyond borders

More Thai companies are looking to invest abroad and banks are acting more like partners to help them through.

Thai entrepreneurs are looking to expand their businesses beyond the borders of the country and this is an opportunity to tap into the upcoming integration of the region, says a leading banker.

The 1,878MWmine-mouth power plant in Hongsa district in Laos, is a joint venture between Banpu and Ratchaburi Electricity Generating Holding Company. It is the biggest project finance syndication deal ever undertaken in Thailand, in which Bangkok Bank played a key role. BANPU PLC

“There are various areas that Thai entrepreneurs can tap into such as the food and beverage industry, medical care and clothing, which are the basic needs of people, and also in the area of energy,” said Nithawadee Limpodom, senior vice-president and manager of the metropolitan corporate banking division of Bangkok Bank.

She says these are the key areas of growth in the region, with energy topping the list.

The emergence of China and India as world economic powerhouses is putting pressure on global resources. Many countries are eager to invest in securing their energy sources for the future. Countries such as Indonesia, the Philippines, Vietnam, Burma and Laos are offering investors lucrative opportunities.

Laos, one of the least developed among the 10 Asean countries, has been the hotbed for investments in energy and contract farming. It is viewed as a stable country aiming to be the “battery of Asia” because of its rich hydroelectric resources.

“Laos is a very good example of countries that are opening up, especially in fields such as power and mining” Ms Nithawadee said in a recent talk with the Bangkok Post.

Various Thai companies have been undertaking ventures in Laos, ranging from construction and power to paper and sugar milling.

Italian-Thai Development has built various dams while Banpu is engaged in mining and other power-related businesses. Siam Cement has subsidiaries that are undertaking plantations for the company’s paper businesses, while the giant Thai sugar producer Mitr Phol has sugarcane plantations in the country.

But undertaking a business outside home turf is not easy and entrepreneurs need to be fully prepared for any and every eventuality that may happen.

Doing business in a foreign country could also mean that the entrepreneur carries the risk of losing the business in case of nationalisation or other unforeseen circumstances. To avoid such a loss, investors are recommended to take on political risk insurance, whose cost is offset by the risk coverage.

“We always tell customers to take on political risk coverage,” she says, adding that the bank can help with further advice in countries where it has a presence, such as Indonesia.

“It is therefore advisable to have an insurance premium as issues such as nationalisation and expropriation can always take place,” she said.

Apart from that, there are other risks such as changes in regulations, which Ms Nithawadee has observed are common in Asian countries, where rules can change at a moment’s notice.

To deal with the uncertainty, she says investors need to be well prepared and flexible.

Citing an example of one large Thai company, she said it entered into the Chinese market and as soon as the country changed the regulations, it decided it was not willing to take on the additional risk and therefore decided to exit the market, despite its market size.

To prepare themselves, companies can seek the advice of bankers on how to do business outside the country. Any enterprise looking to go abroad needs to find the right market and the right partner, and have sustainable cash flow, another area where banks can help.

With relatively small capital, small and medium-sized enterprises may also find the assistance of a bank that knows the local scene especially helpful.

“No one can go it alone when he enters a new market. Where we have branches such as in Southeast Asia and China, we can help in many areas, including providing local knowledge, local connections and business advice.”

Financial institutions, said Ms Nithawadee, can also help businesses looking outside the country to find the right financial structure, be it through project financing or other means.

But this does not mean that financial institutions know it all. People too have to adjust to the changing times.

“We have to learn to change with time, sit down with the entrepreneurs and see what their visions are for the future.

“We need to understand our customers and their industries and see where they will be in 10 or 20 years’ time so we can provide the best solution for them,” said Ms Nithawadee, who won the Promising Young Banker Award for Asia-Pacific Region 2011, the highest of its kind in Asia, two weeks ago from The Asian Banker magazine.

Ms Nithawadee was chosen from among more than 100 contenders from throughout the region. The awards were open to young bankers under the age of 40 who have shown leadership within their organisations and communities.

Ms Nithawadee, who heads the bank’s second largest industry group, the energy division, and is a project manager in the bank’s investment banking group, has arranged financial deals worth billions of dollars during the course of her career at Bangkok Bank.

Those deals include the Hongsa power project in Laos, the biggest project finance syndication deal ever undertaken in Thailand. The project, jointly developed by two of Thailand’s biggest energy-sector players, Banpu and Ratchaburi Electricity Generating Holding Company, will be a major supplier of electricity to the Electricity Generating Authority of Thailand.

She said that one good thing that was happening in Thailand was the fact that the younger generation was not “afraid” of foreigners and that younger businesspeople were standing up to be competitive with them, which was a good sign for the future.

Various companies in the past complained how Thai people were not willing to move out of their comfort zone and work outside the country, but the younger generation seems to be taking postings abroad in their stride and even looking forward to such challenges, she added.

About the author

Writer: Umesh Pandey
Position: Editor for Asia Focus

Thailand takes its foot off the gas

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At the heart of Southeast Asia, Thailand is an increasingly energy intensive country. Out of an estimated population of 67.7 million over 15 per cent live in greater Bangkok and the trend is increasingly away from rural dwelling and towards a city-based population. The result is more energy-intensive industry, more demand for electricity and inevitably, more carbon emissions.

Thailand’s economic growth has stalled as a result of the global economic crisis but recent upward trends point to a recovery, fuelled by a substantial government stimulus programme. The Bt1.4 trillion ($41.2 billion) “Strong Thailand” package includes energy infrastructure project investment. A recent power report on Thailand forecasts that the country will account for 1.9 per cent of Asia’s regional power generation by 2013. The same report projected GDP per capita rising by 40 per cent and electricity consumption per capita growing by eight per cent over the same period.


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