Taking the British path to privatizing PAT

Brooker group analyst explains the government''s new approach to privatizing the Port Authority of Thailand.

The Director General of the Port Authority of Thailand (PAT), Mr Mana Patram, recently announced a new formula that aims to overcome strong opposition from the PAT labour union to the whole privatization process. This new plan calls for the port authority to be privatized as PAT Corporation Public Company Limited (PATC).

Previously, the preferred privatization formula involved setting up a holding company that would own shares in separate companies that were to have run the ports of Bangkok and Laem Chabang. Under this new proposed structure, these two ports are due to become business units of PATC. Simultaneously, a self-regulating organization, or SRO, will be established.

This SRO will continue to own all of the land currently registered as belonging to the PAT, with the Ministry of Finance (MOF) being the only shareholder. All of the non-land assets of the PAT, which have an estimated value of THB 25 billion, will be transferred to PATC - which is the unit now scheduled for privatization next year.

Inspiration for this new formula is reported to have come from the UK where similar structures were used to privatize public transport and port facility operations. Yet one can't help but wonder if the Thaksin government's research into the British experience also managed to look at the post-privatization situation in the UK today, which is hardly known for the quality of its ground transport and related services.

Up until now a big factor behind port workers' objections to the privatization process was the uncertainty over which entity they would be assigned to -- the holding company or the separate units operating Thailand's main ports. In the past, the PAT labour union also accused the Thaksin government of trying to sell off Thai assets to foreigners at cheap prices.

Now that the SRO will be keeping the PAT's land holdings under its own name, this criticism no longer carries as much weight. In addition, the PAT employees that agree to join the SRO will be paid a lump sum from the authority's provident fund and retain their salaries after the hand-over. It is expected that some 90% of the PAT's employees will find themselves working for PATC, and only 10% for the SRO that will function very much like a landlord with respect to the land assets in and around both ports.

It is also expected that the Thaksin government will make it clear that there is not much time to debate this new formula. The PAT's existing provident fund has accumulated losses totaling Bt1.0 billion, and will need to be bailed out soon or face collapse. These losses occurred because of the PAT's massive payout of THB 500 million per year since the start of its early retirement programme.

Yet at an operational level the PAT remains highly profitable. For FY 2002, the PAT is projecting revenues of Bt5.977 billion (+10% y-o-y) and a 15% y-o-y rise in net profit to Bt1.97 billion. However, the MOF has now made it clear that no financial assistance will be forthcoming for the PAT's provident fund unless privatization is achieved in a timely fashion.

According to Director General Mana, if all goes well, registration of the PAT as a public company will be accomplished by March 2003. Yet before this can take place, both the PAT's board of directors and the State Enterprise Policy Committee (SEPC) must grant their approval. Should this process move ahead as planned, investors can expect the Thaksin government to push for the PAT to have its IPO as early as mid-2003.

For more information see: www.brookergroup.com

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