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27 Oct Juslaws & Consult official consultant for Thailand’s Public Private Partnerships

During the Asia Cooperation Dialogue (ACD) Summit 2016 which took place from 8 to 10 October 2016 in Bangkok the importance of public private partnerships (PPP) as a guarantor for growth in Asia was stressed once again.

Thailand is launching huge funds over the next years for infrastructure projects. It has been acknowledged that Thailand is in need of huge infrastructure constructions and various other forms of public services. Private participation in these original duties of the state can help to finance, implement and operate the necessary projects in various forms. This can be highly profitable for both sides: the private party and the public.

Thailand’s new Investment in State Undertakings Act (PISU) and the PPP Strategic Plan 2015-2019 (2558-2562 B.E.) ensure that virtually all major infrastructure project are developed as a public private partnership. According to the PISU each PPP-project has to be appraised by a qualified consultant. Juslaws & Consult holds the required consulting license for PPP-projects. After approval of a certain project as PPP-project the competent state agency will prepare an invitation to tender for private investment, draft terms of reference and draft the PPP-contract. The competent agency may hire a qualified consultant. Juslaws & Consult is one of the few law firms which hold the required consulting license required to assist state agencies with this complex task.

The PISU applies in all cases in which an entity of the private law (e.g. Thai or foreign companies) “invests” in an undertaking which either the state has an obligation to perform, or which requires the utilization of resources of the state or natural resources of the country. However, it does not apply to PPP-projects in sectors which are governed by other laws pertaining to petroleum and mining concessions or as excluded in a Royal Decree.

There are certain activities of the state prescribed by the law which might not be suitable for private engagement, such as police work or the judiciary.

How can a private party precisely participate in the various projects? The PISU talks of “investing”. But what does the PISU mean when referring to “investing” activities of the private entity? Section 4 of the PISU contains a legal definition which is rather tautological: “investment” means a public-private joint investment by any means, or designation of a unilateral private investment by way of a license or concession or grant of right of any kind.

This definition does not say what “investing” means in the first place. However, it differentiates between two different kinds of investment: one which is done as a public-private joint investment and the other as a private investment which requires a state license or concession etc. From this one can infer that “investing” is not to be construed in a narrow sense of committing money or capital but also covers the whole range of activities of planning, construction and operation of a project.

Therefore, in practice, PPP-projects are conducted in the form of various contractual models as set forth in the so called “Investment Contract” between the public authorities (the state) and the private “investor”. Juslaws & Consult specializes in drafting these “Investment Contracts”. We will post more in-depth article on this topic in the near future.

The Minister of Finance is empowered by the PISU to issue Ministerial regulations for the implementation of the PISU.

Juslaws & Consult has published an article about the huge potential of these projects for foreign investors, construction companies and consultancy companies in the last issue of the UPDATE magazine of the German Thai Chamber of Commerce: https://issuu.com/germanthaichamber/docs/update_q3-2016_all

However, PPP-projects in Thailand are an extremely complex legal topic, involving various government authorities with shared different competencies, i.e. ministries, provincial administrative organizations, municipalities, tambon administrative organizations, the Bangkok Metropolitan Administration, Pattaya City or other local administrative organizations. Basically, projects with a value of over one million Baht require approval by the central government.

Currently there are many projects at various stages in the areas of

  • Transportation/Logistics: toll roads, mass transit trains, ports, depots and cargos
  • Utilities: power plants, pipelines and public water
  • Telecommunication: fixed lines, mobile and TV networks
  • Property Development: convention center, hotels and department stores

The PISU provides a relatively streamlined procedure, precise time frame for project consideration and bidding process and project development fund. It even contains rules which are aiming to provide more transparency in the entire process, – a sensitive issues for this topic. The PISU prescribes a pool of experts for selection and monitoring committees, prohibitions for related persons to serve private counterparts and disqualification criteria for advisors and bidders.

The rules of the PISU are given shape by the Thai government’s PPP Strategic Plan 2015-2019 (2558-2562 B.E.) which comprises a project pipeline of 66 projects in transportation, education, telecommunication and other sector and estimated investment costs of 1.41 trillion Baht.

The PPP Strategic Plan divides sectors into two groups. Group 1 applies a so called “opt-out” model which means private sector investment is generally required (urban mass transit system, toll roads in urban areas, logistic ports, high speed rail systems, telecommunication networks and broadband internet). Group 2 is called “opt-in”, so participation and investment from the private sector is encouraged (intercity toll roads, logistics depots, common ticketing system, airport serving, water treatment management, irrigation system, waste management among others).

The Ministry of Finance establishes a “Private Investment in State Undertaking Promotion Fund” which serves to support the preparation of a Strategic Plan and support a state agency in making a project proposal, preparing the project appraisal report and hiring the PPP-consultant.

Although PPPs in Thailand have a huge potential for investors and foreign companies, PPPs pose a considerable challenge to foreign companies and require a trustworthy, well-connected and experienced local partner. Juslaws & Consult lawyers are Thailand’s experts for public private partnerships. Our team comprises legal PPP experts, project finance experts and engineers. Juslaws & Consult is one of few law firms with the required license for PPP-consulting. Please contact our Bangkok office for further information.

Mr. Yuthana Promsin, Managing Partner at Juslaws & Consult

Mr. Christian Moser, Senior Associate at Juslaws & Consult

Crisis on traditional sources of energy and a new scenario for renewable energies in Latin America and South East Asia

24 Mar Crisis on traditional sources of energy and a new scenario for renewable energies in Latin America and South East Asia

Since the early controlled handle of fire by Homo Erectus more than 400,000 years ago, the history of humanity has been a tenacious struggle between men and women seeking to regulate and generate source of energy. Dating back to the dawn of humanity, methods of producing natural resources have collided. In the past, this has been evident with the early control of fire and the property of fossil (carbon and petroleum to name two) and nuclear fuels. Presently, we can understand the discussion of renewable resources as a contentious topic in the geopolitical dialogues that exist today. Aside from the debate surrounding renewable energies, the topic also presents itself as an area of interest for both public and private sectors throughout the world.

This leads us to posit the question: what is the current reality of renewable energy resources today? Moreover, how can we understand the dichotomy between old and new methods of harvesting these materials as the industry continues to evolve as we move further into the 21st century?

At the moment, we are living in a period of transformation, as societies, governments, and industries begin to switch from the use of traditional resources like petroleum to the implementation of renewable materials like wind and solar power in energy projects. Despite recent large oil discoveries spanning from Coober Pedy (Australia), Vaca Muerta (Argentina) to the Gulf of Mexico, in addition to the African countries of Mozambique, Angola, and Nigeria, the fact remains that the Oil and Gas industry has experienced a number of obstacles in the past five years. While it is certain that the revenue generated from the oil industry remains highly profitable, it is evident that the industry is struggling. This is notable when we look at the case of the multinational Tullow Energy Oil Company, which in 2013 suffered, more or less, twenty dry holes resulting from wells drilled for gas that yielded none.

With regard to the topic of nuclear energy, the environmental disasters of Chernobyl in 1986 and Fukushima in 2011 gave rise to a new social awareness throughout the world. With the dissemination of graphic images, memories and accounts from these disasters throughout the world, civil society has begun to think more clearly about the potential risks and dangers of nuclear power. Energy experts such as Mycle Schneider have pointed out that: “the nuclear industry was arguably on life support before Fukushima. When the history of this industry is written, Fukushima is likely to introduce its final chapter.” In addition to Schneider’s argument, it is also important to consider that acts of terrorism and natural disasters such as Tsunamis can also increase the vulnerability and shortfalls of nuclear energy, as nuclear power stations can be easy targets for terrorists seeking to create widespread damage, as well as the unpredictable nature of environmental catastrophes.

Based on my professional experience in the legal consultancy sector throughout Europe, South America and Southeast Asia (where I currently practice law in Bangkok), I have identified a strong trend of authorities in the Oil and Gas industry that are shifting their attention and investments to the promise of the renewable energy sector. Having worked for geologists, petroleum engineers and drilling engineers in Malaysia and Singapore, I have noticed the attraction among these industry executives toward solar and wind energy projects. Believing that these sectors provide exciting new opportunities and potential, investors remain eager to explore this expanding market, predominately throughout Southeast Asia, with an emphasis on Thailand and the Philippines.

While this article may lead us to understand that the Oil and Gas industry is currently undergoing a period of transition, it is crucial to emphasize that this will be a slow transformation. Due to the energy industry’s progress in embracing natural resources, we can speculate that Asia and Latin America are likely to become the two largest markets for renewable energies within the next two years. As Latin America continues to grow its middle term, Asia is also expected to continue experiencing rapid economic and industrial development.  As a result of this predicted growth, experts estimate that world energy consumption will increase 56% by 2040, led by China and India.

Although the two industrial giants of India and China tend to dominate Asia’s projected economic development, we must also remember that South East Asia is also experiencing one of the area’s highest levels of economic augmentation. In countries such as Singapore, Indonesia, the Philippines, Thailand, and Vietnam, investment often reaches that of $128,000 million USD, a significantly higher figure when compared to the $120,000 million USD that China attracts.

Concerning Latin America, the renewable energy sector continues to boom, as the region generates 7% of the world’s electricity, with 65% of this coming from renewable sources. In the last seven years, the potential to generate green energy has grown 270%. Clear examples of this “green revolution” can be seen with projects such as the $100 million solar energy project in Chile’s Atacama desert, the $124 million investment in San Juan, Argentina by the Schmid Group, in addition to the new renewable energy regulations and affable policies in Costa Rica, Mexico, Chile and Uruguay. On top of these groundbreaking projects, the Inter-American Development Bank (IDB) published a comprehensive report on renewable energies in Latin America that affirmed that these sources would be enough to supply more than twenty-two times the electric demand of the region in 2050.

Aside from the evident shifts toward renewable energies and policies in both Asia and Latin America, it is critical to acknowledge that these economies still tend to rely on revenues from oil, gas and coal. Nevertheless, while the United States Energy Information Administration (EIA) expects a growth of an estimated 1.9% annually, this may increase if military occupations (such as the cases of Libya and Iraq) continue to sweep petroleum-endowed countries, with the possibility of Syria and Venezuela as possible targets. Additionally, when we consider the case of Saudi Arabia’s foreign interference in Yemen’s internal matters in March 2015, we can hypothesize that entire regions are at risk of loosing political stability.

Furthermore, it is also of worth highlighting that, aside from the previously mentioned impact of natural resources on the energy market, the commitment to the environment and the awareness of the pollution produced throughout the developing world (an already sensitive issue in the main capitals of Latin America and Asia) can yield to a decrease of energy dependency on fossil fuels. While it is critical to implement a realistic, regional and legal framework under a strict protocol of sanctions surrounding the emerging natural energy industry, cases of non-compliance can bring us further from achieving what the ASEAN Plan of Action for Energy Cooperation set as guidelines from 2010 to 2015.

With globalization creating new possibilities for renewed energy markets, these markets are also constantly being restructured. Geographically, we can identify this by observing how photovoltaic power stations were built in California, and later Spain, which by 2008 became a staple product in the renewable energy industry. Today, China’s renewable energy market has overtaken that of Germany, while large-scale projects have already materialized in South East Asian locations such as Lopbori in Thailand or Palawan in the Philippines. This is to say that when we look at the relationship between geographic change and displacement, we also see a rapid evolution and reorganization of these renewable energy markets.

Regarding solar energy, Thailand continues as the leading beneficiary of foreign investments in Southeast Asia. The decrease of the price of solar panels (solar PV module costs declined by 83% between 2000 and 2013) have led Thai officials to better understand the negative impact that could result from making Thailand 70% dependent upon sources of imported natural gas. Moreover, Thailand’s commitment to rely upon 25% renewable energies by 2021 comes from a power-purchase agreement of twenty-five years and a feed in tariffs (FiT) system, similar to that of Malaysia, the Philippines and Indonesia. This agreement offers a fixed price for generating electricity and selling it to the grid for a specific duration of time. This, as well as Thailand’s potential to generate daily solar exposure at around 19-20 MJ/m2-day make it a hotspot for solar energy in both Southeast Asia and the World. And the plans go forward because by December 2015, Thailand will have more solar power capacity than all of Southeast Asia combined.

While climate change remains the biggest enemy of renewable energy projects in Latin America and Southeast Asia, the affinity of various MERCOSUR and ASEAN members to petroleum and coal poses an equal threat. As a result, it will be vital for MERCOSUR and ASEAN governments to identify the enormous potential in renewable energies and the contribution this sector can make to their local-regional economies, as well as the benefits for quality of life it will provide for their residents and forthcoming generations. The challenge remains on the table for the two largest emerging regions in the world.

Petroleum Concession in Thailand

24 Mar Petroleum Concession in Thailand (Newsletter March 2016 Part 1)

Newsletter Juslaws & Consult (J&C) – March 2016 Part 1: Petroleum Concessions in Thailand

Thailand is opening its 21th bidding round for oil and gas exploration concessions by the middle of 2016. The current concessions will expire around 2021. The next bidding round has been delayed due to intervention from NGOs, in particular environmental activists.

The oil and gas concessions in Thailand are particularly interesting for petroleum companies asthe Thai government is participating in the profits from oil and gas exploration at a rate of totaling roughly 67% which is less than in the neighboring countries, where the government share on average equals 74%. In the case of Thailand the government share consist of sliding scale royalty based on production, a specified (50 percent) petroleum income tax applied to profits, and a special-benefit windfall profit tax. On the other hand the average discovery size in Thailand is small compared to other countries in Southeast Asia (7 million barrel of oil equivalent). In the new bidding round Thailand will offer 29 petroleum blocks – comprising 23 onshore blocks and six offshore blocks in the Gulf of Thailand – stretching over 66,463 square kilometers. One can expect a discovery of 1 to 5 trillion cubic feet of gas and 20 to 25 million barrels of crude oil.

In Thailand today the oil and gas exploration is dominated by U.S. companies besidesthe Thai PTT. The two big player in the industry in Thailand are at the moment Chevron and PTT. PTT emerged from the former state-owned Petroleum Authority of Thailand, back then under the control of the Ministry of Industry. After privatization PTT became PTT Public Company Limited, a huge holding company with several affiliate companies. Oil refinement is currently conducted by by Bangchak Petroleum Public Co., Ltd., Star Petroleum Refining Co., Ltd., Thai Oil Public Co., Ltd., and PTT Aromatics and Refining Public Co., Ltd. PTT is a significantshareholder in most of Thailand’s oil refining companies.The new biding round was preceded by substantial legislative changes of the regulatory framework governing the oil and gas license system. Environmentalists had urged a conversion from the existing concession system to production sharing contracts. The new legislation instead provides a choice for the petroleum companies between these two systems. If you would like to find out more about the different types of license agreementsforthe oil and gas industry, please contact us.

Part 2: GTCC Membership

Part 3: Boi Seminar

Part 4:Thailand Japan Young Entrepreneurs Networking

Part 5: PPP and Civil Construction Projects in Thailand

Part 6: 2016 Acquisition of Hotels & Resorts in Thailand and Due Diligence Report

Company Formation

Company Formation in Thailand
Are you looking to invest but do not know where to begin? There are different kinds of business setups tailored to your needs, such us:

1. Thai Limited Company
2. Foreign Business
a. Foreign Business License
b. Branch Office
c. Representative Office
d. Regional Office

1. Thai Limited Company
Thai limited companies are generally simple in terms of setup. The characteristics and requirements include:

a. Shareholding: A minimum of 51% Thai and 49% foreign. However, if land is to be acquired within the Thai Limited Company, it may have to be proven that all shareholders have contributed to such shareholding in the company at the relevant land department. For this reason, it is suggested that the majority of Thai shareholding be increased and may be changed at a later stage.
b. Capital: No minimum requirement
c. Shareholders: a minimum requirement of three (3) shareholders must be in place.

2. Foreign Business
A foreign business is usually setup by an individual or a group who chooses to setup their company with majority foreign shareholders instead of Thai. The setting up is a little more complex as there are certain activities that are prohibited by law. Business activities are compiled into three: 1) prohibited activities, 2) activities that are not ready to be competed with Thai economy, and 3) business activities that are not contained in list 1 and list 2, however, can be applied for.

Foreign Business License
The application process for a foreign business license usually takes 60 days upon submission for a decision. The advantage is that, if the application is denied, the application can be revised and resubmitted. The minimum capital for a foreign business license is Three Million Baht. However, this does not have to be repatriated into the country all at once.

Branch Office
A branch office is setup as a branch of a main head office overseas. The branch office is permitted to trade that derives income. If you wish to setup a branch office, you must apply for Foreign Business License under category which best fits your business activities. List Two and List Three activities which are listed in the Foreign Business Act, as List One is strictly prohibited for foreigners to engage in such business in Thailand. The minimum capital for a branch office is also Three Million Baht. Taxes and balance sheets must also be submitted every fiscal year.

Representative Office
A representative office differs from the branch office. Representative office is not permitted to buy or sell products or services although the remaining characteristics of the branch office still apply. This kind of office is usually setup for research of various products and services or the market of a particular industry to be reported to the head office located overseas.

Regional Office
A regional office is usually setup for purposes of managing any other branch or representative office that is located overseas in a particular areas or region. The same characteristics such as those of a representative or a branch office still apply however, a similarity to the representative office in that the regional office is not permitted to trade. Given above, it is best to outline your needs to the business activities you wish to engage in and consult a lawyer to see what best fits you. Contact us today for a free basic consultation!

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