Piyasvasti Amranand on EGAT privatization | 15.11.05

In June 1998, as secretary general of National Energy Policy Council:

7. Will electricity prices become more expensive after privatisation?

Privatisation of the power sector will bring about increased competition and it is believed that electricity prices will be lowered, compared with a case of no privatisation. This is due to the fact that open bidding will be used to encourage private investors to compete in the power generation business. Investors will, therefore, have to submit their price proposals to compete with each other. EGAT will compare the investors’ proposed prices with those which EGAT would have charged if it had to construct its own power plant instead of buying power from IPPs.

If the investors’ bidding prices are higher than EGAT’s, such proposals will be rejected. The outcome of the previous IPP solicitation has indicated that the electricity prices proposed and selected are lower than the prices resulting from EGAT’s own generation.

It is expected that, after privatisation, electricity prices will be cheaper than those determined by the current natural monopoly.

[Emphasis original]

In November 2005, as chairman of Kasikorn Asset Management:

Piyasvasti Amranand, chairman of Kasikorn Asset Management and an energy expert, cautioned investors, saying the share purchase entailed risks. The government would be in a dilemma because intervening in Egat after listing would dent transparency and dampen investor confidence. But if it left everything to market forces, power bills could surge. [Emphasis added.]

In June 1998:

9. How will the benefits of privatisation to Thailand and its people be guaranteed?

If EGAT is transformed into a public limited company (PLC), with 100% shareholding by the Ministry of Finance, EGAT will still remain a state enterprise. In this case, the National Energy Policy Council (NEPC) and NEPO will continue to perform regulatory functions, overseeing service quality and tariff rates.

If, however, funds are raised from the private sector through private investors’ shareholding in EGAT PLC, it will be necessary to enact a new law to empower the state to protect consumers in regard to electricity prices and service charges. Also, an independent regulatory body will have to be established to regulate the power sector in compliance with the law.

[Emphasis original]

In November 2005:

“If the government contemplates meddling with the post-listing electricity price, it should not go ahead with offloading Egat shares,” he said.

19:17 ▪ politics

« EGAT privatization | Main | Plus ça change? »

1

JW 16.11.05

He only thinks the EGAT IPO should be delayed until a regulatory body is established. This what he states in para 2 of point 9 above - how has been done a “John Kerry” here? (remember the Ministry of Finance won’t have a 100% shareholding so para 2, NOT para 1 applies)

He has also been fairly consistent over time with his views on privatisation and wants it in right form. He is quoted in this article on Apr. 10, 1998

Board member Piyasvasti Amranand said that no single investor was big enough to take over the authority and that allowing one to do so would create a private monopoly instead of a state monopoly.

More from Piyasvasti Amranand on 7 Feb 2005

Thaksin last March scrapped plans to raise $1.8 billion from the sale of Electricity Generating after employees protested.

“Privatization he should push at full steam,” said Piyasvasti Amranand, chairman of Bangkok-based Kasikorn Asset Management Co., which invests the equivalent of $3.9 billion. “Otherwise, we’ll end up like China, where they have shortages of certain infrastructure.’

Now, on 30 July 2005

Mr Piyasvasti’s view on Thai competition echoes Adam Smith’s assertion that business cliques naturally tend towards “a conspiracy against the public”. An ambitious privatisation programme of public utilities, notably in the energy and communications sectors, will transform public monopolies into private monopolies, with little gains in efficiency, he says.

The Nation on 18 October 2005

Speaking at a seminar yesterday, Dr Piyasvasti Amranand, chairman of the Energy for Environment Foundation said the government should delay its plans to float Egat shares on the stock market next month as there are still a number of issues to be decided, including an electricity price adjustment mechanism, regulatory system, the government’s intervention on the Ft tariff and the cross-subsidy among electricity utilities.

I would also suggest you read an article he wrote for the Bangkok Post on 25 June 2003 to get his full views on privatisation.

I don’t think FTAWatch or the EGAT Labour Union (a cabal if ever I saw one) will be supporting him anytime soon.
I think you have been sucked in by the Bangkok Post by the selective quoting of all opponents of the EGAT IPO without understanding the reasons behind their opposition.

P.S For the rationale on the need to have a regulatory body, see this article

“Without the regulatory body, there is a chance that the government could intervene in the power prices. That will make this investment highly risky.

2

Tom Vamvanij 16.11.05

JW:

You caught me. I was in fact not very comfortable with the “he was for it before he was against it” line, because “it” could mean nothing other than EGAT’s privatization, and I was not quite ready to say that Khun Piyasvasti is against that.

However, he did contradict himself very clearly on two issues, at least in those quotes. I have amended the post to make that clearer and remove the Kerryesque taunt.

I don’t think FTAWatch or the EGAT Labour Union (a cabal if ever I saw one) will be supporting him anytime soon. I think you have been sucked in by the Bangkok Post by the selective quoting of all opponents of the EGAT IPO without understanding the reasons behind their opposition.

Actually, I did some research on the guy yesterday and found an article quoting him on the EGAT union’s webboard protesting the privatization. He was, as you said, not against it in principle, just the way it was being done by the government. The unionists would still take it, though. That’s why Khun Piyasavasti should’ve know better than to throw red meat like the possibility of rate hikes (which he previously said were unlikely) at the current protesters, who are even less reasonable. (Unlike the unionists, they are not driven by self-interests, but by the usual NGO nationalist rubbish, which found an effective speaker in the ever-repugnent Sondhi Limthongkul.)

Ironically, thanks to generous stock options, EGAT employees are now more than on board:

Angry staff see hopes of profits fade

Employees of Egat Plc are upset at the Supreme Administrative Court’s verdict to suspend Egat’s share offering and listing, since most have already borrowed money to buy the shares.

Of the 25,900 Egat staff members, only 26 decided not to subscribe to an employee stock option programme.

Maybe they should consider a counter-protest.

3

JW 17.11.05

Piyasvasti’s point in para 7 is that “It is expected that, after privatisation, electricity prices will be cheaper than those determined by the current natural monopoly.” Isn’t his implied point that privatisation = no natural monopoly and therefore cheaper prices. Thus, if there is will be a natural monopoly after privatisation then electricity prices will not necessarily be cheaper (and there will be a natural monopoly in some aspects after privatisation). The whole point of para 7 to me is to explain how the prices will be cheaper and that is because of the competitive nature of electricity production will lead to greater competition and lower prices for consumers because the cost of production will be reduced. I will admit he could have made it more explicit on what form of privatisation will lead to cheaper prices (which he does in para 9), but I think in para 7 he is just setting out how privatisation can lead to cheaper prices.

I think this is made even clearer when you you read para 7 in conjunction with para 9. Answering how “the benefits of privatisation to Thailand and its people be guaranteed”, he says that it is necessary to have an independent regulatory body. Today, he is saying the same thing because without this independent body it will be left up to the government to decide the prices and for an investor in shares there are risks associated with this.
For example, if one month before an election EGAT want to increase the price of electricity by 5%. Then, the next day 20,000 people go marching on government house demanding that the price of electricity not be raised. I am assuming that (1) the economic evidence was that economically optimal price meant the price needed to be raised, (2) the media outlets are all rushing to support ‘the people’. The temptation of the government not to raise the price will be high as who cares about the long-term when you have an election to win. Anyway, real problems might not arise until 5 years down the track and by then you probably won’t be in government and can blame everything on the government. At least with an independent regulator, you can blame them for hurting ‘the people’. Having said that, you could also have opposition from EGAT shareholders that the price must go up even further.

From an economic perspective, it is also so certainly possible that if you have a private natural monopoly with no independent regulation that the price will rise which is what I think was his point (although that wouldn’t necessarily be bad for the shareholders of EGAT). I don’t think this will likely happen, given the government will retain a 75% shareholding (I mean they could also increase the price now). So yes, you do have a point about him throwing red meat.

Howver, I do think you are reading too much into the words used by the Bangkok Post’s reporter paraphrasing in English on what he likely said in Thai. He could have been asked a direct question and gave a qualified answer (which if you read most of the direct quotes he makes, he qualifies most of his statements) and that qualification was left out.

Sorry, to sound like an apologist for Piyasvasti, but he has been very consistent on his views of privatisation. Also, I am impressed by his ideas on the form of privatisation (it his nice he had a Ph.D from LSE as well).

4

JW 17.11.05

Employees of Egat Plc are upset at the Supreme Administrative Court’s verdict to suspend Egat’s share offering and listing, since most have already borrowed money to buy the shares.

Of the 25,900 Egat staff members, only 26 decided not to subscribe to an employee stock option programme.

Interesting given the EGAT Labour Union’s opposition to privatisation of EGAT in seemingly all forms

Sirichai Mai-ngarm, the union’s president, said he was well aware of Thai Rak Thai’s platform to privatise the state power agencies. “We are still anti-privatisation and will continue fighting to keep Egat’s status unchanged because the power sector should remain part of the country’s basic infrastructure. The focus should be on service, not too much profit-taking,” said Mr Sirichai.

Good to see the interests of those 26 staff members are being served.

Just quickly on the delay, I think opponents of the privatisation will be disappointed. The court is only looking at the legality of the two executive decrees and not on whether privatisation is legal. Even if the court rules against the legality of the executive decrees, the government could easily issue newly worded executive decrees. Dare I say they won’t be happy for too long.

Finally, Thaksin will surely be dissapointed as the idea of privatisation is right, but there has been a failure in execution.
Hopefully, the delay will allow the government to sort out some of the legitimate complaints arising from privatisation issues (ie an electricity price adjustment mechanism, regulatory system, the government’s intervention on the Ft tariff and the cross-subsidy among electricity utilities).

5

Fringer 28.11.05

I think much of the apparent “contradiction” in Khun Piyasawasdi’s 1998 vs. 2005 quotes is due to the fact that the current form of EGAT privatization (i.e. no separation of transmission lines, no ‘real’ regulatory body, etc.) is quite different from the one Thailand was following when he was a NEPO years ago. For a good summary of why the current form that Thakin is pushing for is worse than the previous agenda, see:
http://www.midnightuniv.org/midnight2545/document95234.html (it’s in Thai, but I can’t find the English version).