Industry Trend Analysis - Construction Open To Private And Foreign Firms - FEB 2017

BMI View: Opportunities for private and foreign participation in Thailand ' s infrastructure industry will continue to present themselves, as the market remains one of the more competitive in the region. While government agencies and SOEs fill designated roles in sponsoring or operating projects, significant numbers of investment and construction contracts are taken up by private domestic and foreign companies , resulting in Thailand having one of the most diverse infrastructure competitive landscapes in Southeast Asia.

Thailand's infrastructure industry remains one of the more competitive and more open for private businesses in the region, with significant levels of participation by domestic and foreign companies in ongoing projects. Interestingly, Thailand's construction industry is less oligopolistic or state-dominated than many of the country's other sectors. While government agencies and state-owned enterprises (SOEs) continue to fulfil designated roles in sponsoring or operating key projects - such as transmission grids, oil and gas facilities, railways and airports - they have almost no presence in the construction or equipment supply process itself. Additionally, Thailand is also seeing an influx of investments from a number of development finance institutions (DFIs) due to its strategic location in Southeast Asia and history of relations with regional powers.

More Diversity Than Regional Peers
Thailand - Infrastructure Project Market Share, by Company Role
Note: Companies in Design/Architect and Consultant/Project Management roles were excluded due to an insufficient sample size. Source: BMI Key Projects Database.

Favourable Investment Regulations

Thailand's infrastructure industry remains relatively open to foreign and private participation, especially compared to many neighbouring markets in the region. While the government restricts or limits foreign participation in certain sectors including domestic transportation services, private construction projects of greater than THB500mn (USD14mn) are open to foreign investment. However, we highlight that the tendering process in the country remains relatively opaque and corruption is common in the industry - Transparency International ranked Thailand 76th out of 167 countries in its 2015 Corruption Perceptions Index.

A unique investment option in Thailand is official infrastructure funds, which have been launched by the government to raise money for public projects. We believe the funds have the potential to boost Thailand's attractiveness by allowing investors to pool the risks from individual projects. The government plans to launch a THB100bn (USD2.8bn) 'Thailand Future Fund' in the first quarter of 2017, Reuters reported in December.

Local and Foreign Builders

There are more than 590 construction companies that are part of the Thai Contractors Association, but larger firms tend to take lead roles in the country's major infrastructure projects. These companies include Italian Thai Development, Unique Engineering and Construction, Sino Thai Engineering and Construction and CH. Karnchang, all of whom are participating in the construction of several new rail transit lines in Bangkok.

Foreign construction companies with a presence in the country include the China Harbour Engineering and Sinohydro, France's Alstom, and South Korea's SK Engineering & Construction. Like in many other emerging markets, foreign companies with technical expertise have an advantage in Thailand, given the lack of domestic sources of advanced equipment like trains, generators and water treatment technologies. The top companies in supplying equipment or providing consulting, design and architectural services in Thailand are all foreign and include Australia's TerraTec, America's General Electric and Austria's Andritz Hydro.

Diverse Foreign Participation

Domestic companies and organizations have just over 64% of the project market share in Thailand according to our Key Projects Database, leaving significant room for foreign companies and government organizations to invest in and participate in infrastructure projects. Japan, which is the single largest source of foreign-direct investment (FDI) in Thailand, also has the highest level of involvement in infrastructure at 11%, followed by China and South Korea. Many projects with foreign participation also involve the relevant countries' export credit or development agencies such as the Japan International Cooperation Agency, the Exim Bank of China, and the Korea Export-Import Bank.

Foreign Participation High
Thailand - Infrastructure Project Market Share, by Company Nationality
Source: BMI Key Projects Database

Chinese and Japanese firms have a particularly strong presence in the Thailand's rail sector, which reflects the growing global competition between the two countries' rail technologies. While China's Beijing Construction Engineering Group, Sinohydro and China Harbour Engineering are involved in building two mass transit lines in Bangkok, Japan's Mitsubishi Heavy Industries and Japan Tunnel Systems Corporation are involved in another five. Additionally, while the China Railway Construction Corporation is currently building a high-speed railway that aims to eventually connect Bangkok with Kunming, China via Laos, the Thai and Japanese governments signed a memorandum of cooperation in 2016 indicating that the planned Bangkok-Chiang Mai High-Speed Railway will use Japanese bullet train technology.

Energy Sector More Constrained

Thailand's energy and power sectors are notably more constrained, with SOEs PTT and the Electricity Generating Authority of Thailand (EGAT) maintaining large market shares, respectively. PTT's near-monopoly status in the oil and gas industry means that all of the pipeline and petrochemical projects in our Key Projects Database involve the company or its subsidiaries. State-owned EGAT is sponsoring or will operate 15 of the 27 power projects in our Key Projects Database. Independent power producers do have a share of Thailand's electricity market, with Ratchaburi Electricity Generating Holding, Energy Absolute and Electricity Generating Public Company (EGCO) being three major players.

Less Competitive Power
Thailand - Ongoing Power Infrastructure Projects, by Operator
Out of 28 power plant and transmission grid projects marked as 'Approved', 'At planning stage', 'Contract awarded', or 'Under construction'. Source: BMI Key Projects Database