The Port Authority of Thailand - a potential goldmine

One of Thailand''s most profitable state enterprises ranks high on the privatization agenda.

Alongside the privatization of the the Airports Authority of Thailand (AAT) this November, a divestment in the Port Authority of Thailand (PAT) sits high on the Thaksin Government's IPO target list in the transportation sector. However, there are strong reasons to believe that privatization of the PAT will be difficult to achieve by the target date of late 2003/early 2004, if at all.

PAT is responsible for operations at Thailand's two largest ports û the Bangkok Port and Laem Chabang Port in Chonburi province û and is under the general supervision of the Ministry of Transport and Communications (MOTC). Established in 1951, PAT enjoys full management control of Bangkok Port (including its terminal operations), offering a full range of cargo handling, storage and delivery services for importers and exporters.

At Laem Chabang Port, which opened in 1961 along Thailand's Eastern Seaboard, PAT is only responsible for port development and the provision of common services. All terminal operations at Laem Chabang are carried out by private sector firms.

At the end of fiscal 2001 (September 2001), PAT had total assets of Bt23.8 billion ($5.4 billion). For the same fiscal year, PAT reported a net profit of Bt1.07 billion ($247 million) on total revenues of Bt5.5 billion, making it one of Thailand's most profitable state enterprises.

Plans for privatization of PAT date back to 1997 and are based on a set of guidelines drawn up by the National Economic and Social Development Board (NESDB). The goal then, as today, is to privatize the two ports to make them "independent, flexible and free of any bureaucratic procedures". Advisors were appointed soon thereafter, and in May 2000 the first round of restructuring of PAT in preparation for privatization was completed.

In November of the same year the revised Port Authority of Thailand Act was passed by parliament giving PAT the authority to transform itself into a public limited company. As recently as February 2002, the State Enterprise Policy Committee endorsed PAT's framework for privatization with the goal of listing the company on the Stock Exchange of Thailand in the fourth quarter of 2002.

However, throughout this process, the labour union representing PAT's 4,800 employees has vigorously opposed any move towards privatization. On the surface, their chief concerns are the usual issues of benefits, pensions and job security. To allay these worries, in March 2002 PAT organized a special forum for PAT employees to explain its privatization plans. While PAT union officials boycotted the proceedings, the 500 PAT employees that did attend were assured by the authorities that their existing salaries and benefits would be secure after privatization, and that in the IPO's first round the 30% stake scheduled to be floated would be restricted to domestic investors.

Previously, PAT's union had accused the Thaksin Government of selling off national assets to foreigners, who would in turn probably make excess staff redundant in a drive to maximize profits.

Yet this debate completely masks the real reasons why many PAT employees, as well as senior management, oppose the whole privatization process. PAT, along with the Customs Department, has long been regarded as among the most corrupt of all Thai state agencies.

For years, importers and exporters have complained about the excessive "tea" money payments regularly demanded by port and customs officials for shepherding cargo through the "system". Once PAT is privatized, it is almost certain that the worst of such practices would be curtailed, or at least be more difficult to pursue, thus cutting deeply into the extra income "earned" by those involved. So even if their current official salaries and benefits are guaranteed by the government, it comes as no surprise that more than a few PAT employees and management stand to lose if privatization ever goes ahead.

This is not to say that reforms at PAT are not on-going. In January 2002, the Cabinet approved the appointment of Mana Pattatham as PAT's new Director General. Pattatham is the first director general in PAT's history to come from outside the organization. Previously, he worked for a number of private sector shipping lines, including Mitsui O.S.K. Thailand Co Ltd, where he was General Manager between 1982 and 1994. From 1996-1997 he was Managing Director of Opensea Container Line Co Ltd, as well as Executive Director of the Thai International Freight Forwarding Association.

One of the Director General's first initiatives has been to invite private operators to play a role in the administration of port operations, as well as inject more of a "service minded" culture across PAT's operations. Progress is already being made on these fronts.

For example, starting from October this year, private stevedoring companies are scheduled to begin container stripping operations at Bangkok Port, which will involve unpacking containers, sorting, inspecting and controlling the movement of goods based on two-year service contracts approved by the PAT. This will be the first time that private operators have been allowed to engage in such activities at Bangkok Port.

So, while hope for speedy progress towards PAT's privatization appear misplaced, at least Thailand's importers and exporters can look forward to more efficient container services at Thailand's largest port.

Danial Nielsen is an analyst for the Brooker Group. For more information about the Brooker Group please click here.

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