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Until Thailandís financial collapse in mid-1997 the Lao economy appeared to have an increasingly secure future, supported by the expansion of electricity exports to Thailand from a succession of new hydro power plants. In 1997-98 Thailandís ambitious plans for increased electricity imports from Laos were reduced drastically, as its own economy moved into deep recession.
Now there has been a dramatic turn-around, brought on by a strong surge in electricity demand in Thailand over the past 12 months, as its economy has revived. Early in March, Minister Savit Bhotiwhok of the Thai Prime Ministerís Office announced that he had advised the Nam Theun 2 consortium, led now by Electricite de France (EDF), that Thailand was prepared to pay US 4. 3 cents per Kwh (0.1 cents more than in 1997) and to take 95 per cent of the electricity generated. The Electricity Authority of Thailand (EGAT) would pay for half the electricity purchased in Thai baht and for the other half in US dollars, to share the risk of currency fluctuations with the seller. And it was anticipated that World Bank funding would be approved.
In the ensuing weeks the consortium partners accepted this offer, but the LaoGovernment held out for a better deal. After further negotiations agreement was announced in April for a purchase price of 4.21 cents per Kwh to be paid for Nam Theun 2 power (.01 cents above what EGAT regards as Thailandís domestic generating cost), but with double the quantity previously agreed for the hours of lower demand. Thailand will still take the full generation of 4,400 million kilowatt-hours annually for 16 hours per day, and in addition 600 million kilowatt-hours for the Ďsecondary purchaseí, of electricity generated in the remaining 8 hours per day. Press reports at the end of April noted that the Lao Government hoped to derive an annual revenue of $US 250 million from Nam Theun 2. The Lao Governmentís revenue is in fact likely to be much more: Thailand has now agreed to purchase the electricity generated from the three new projects (Nam Theun 2, Nam Ngum 2 and Nam Ngum 3) to be built before 2006. Initially these plants will supply Thailand from an installed capacity of 1,883MW by 2006, equal to twice the capacity of Nam Theun 2 when it is fully equipped, but subsequently their total capacity for supplying Thailand will be 3,263 MW by 2008. On this basis the long-term revenue to the Lao Government from electricity sales may be about $US 1 billion annually, with more to follow.
Clearly, agreement on Nam Theun 2 was a critical first step for Thailand to meet its expected energy needs in and after 2006. It was also a critical element in Thailandís ambitious plans for the early development of a regional energy grid with Thailand as the central consumer and also exporter, involving cross-border supplies and distribution from southwest Yunnan to Singapore, eastwards to Cambodia and Vietnam and perhaps westwards to Myanmar. Construction of the Jinghong project (1350 MW) on the Lancang Jiang, or upper Mekong, in Yunnan is already covered by a contract between GMS Power Co. of Thailand and the Yunnan Provincial Government, and approval has already been given for a transmission line to be built across northwest Laos, to link with the Thailand grid in Chiangrai.
In addition to the involvement of the private sector in electricity generation in Laos, Yunnan, Myanmar and Thailand, it is envisaged that business-oriented organisations will invest and operate inter-country power transmission lines.
This was outlined as part of ďASEAN Vision 2020Ē by the governor of EGAT, Mr Viravat Chlayon, to 60 senior executives of power utilities and authorities from 9 ASEAN countries (ĎASEAN minus Burmaí) at a meeting in Chiangrai on 26 April. And there will be further opportunities for the private sector: the international consortium providing main funding and operational management for Nam Theun 2 comprises EDF, Ital-Thai Development Co. and Transfield (Australia); Nam Ngum 2 (550 MW) will be built and operated by an international consortium led by Siemens AG of Germany; and Nam Ngum 3 (440MW) will be built as a joint venture of GMS Co. (Thailand), an unnamed Japanese partner, and with 70 per cent funding currently being sought from the Asian Development Bank and the Japanese Overseas Economic Cooperation Fund.
At the Chiangrai meeting on 26 April which endorsed Thailandís push for an integrated regional power network, it was clear that several main constraints were already being addressed, if still a long way from being solved in some instances. Thus the prices to be paid to Laos, Myanmar and other future sellers (e.g. Yunnan) are being determined as the prices EGAT is prepared to pay for Thailand-generated electricity; secondly, geopolitical interests are being met by involving European, Japanese, Thai , broader ASEAN and Chinese participation; and thirdly, the immense capital needs for dams, power plants and transmission lines are clearly now being actively explored.
WATCHPOINT: Laos and Thailand, in their push for an integrated regional power network, will need to resolve power pricing issues, satisfy geopolitical interests, and find immense sources of capital.
About our company:
AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.
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