[Analytics] All aboard Thailand’s decentralization train

Thailand has made scant progress over the past three decades in spreading power and national budgets outside of the capital Bangkok, a core issue behind the nation’s yawning wealth divide. But now there is a slim hope that the decentralization process has begun, and it has started not in the capital but in the provincial city of Khon Kaen through an independently devised light rail project. Peter Janssen, Khon Kaen specially for the Asia Times.

“This is decentralization but I don’t want to use that term,” said Suradech Taweesaengsakulthai, president and chief executive officer of CHO Thavee PLC, and a founding member of the Khon Kaen Think Tank (KKTT).

Khon Kaen is a medium-sized city with a population about 120,000 in northeastern Thailand, best known for being home to Khon Kaen University and for tourists a tortoise zoo.

The KKTT was established four years ago by a group of 20 local entrepreneurs, politicians, hoteliers and academicians fed up with decades of neglect by Bangkok and determined to chart their own course in developing their city.

Thailand’s Bangkok-led decentralization efforts have stalled since the late 1990s, when the first decentralization bill was pushed through to create local elected bodies that were supposed to get about 30% of the national budget.

The reform was resisted by the central bureaucracy, and under the regime of Prime Minister Prayut Chan-ocha elections for the local bodies were cancelled.

The non-elected KKTT has acted independently, with its first achievement being the successful launch of an urban mass transit project suitable for Khon Kaen and other secondary cities. Construction on the project is expected to begin in the last quarter of this year.

Bangkok has over the past two decades built up an impressive rapid mass transit system covering almost 100 kilometers, with several extensions to the network now underway. But there are no mass transit systems to date in any of Thailand’s other urban hubs, despite growing problems with congestion, mafia-type public transport monopolies and pollution.

The traffic congestion is most noticeable in Thailand’s more popular tourist destinations such as Pattaya, Phuket, Had Yai and Chiang Mai, where local populations vary between 200,000 to 300,000 but also welcome an annual influx of millions of foreign tourists.

Ironically, it has been Khon Kaen City, which attracts few international tourists, that has emerged as a leader in devising its own urban mass transit system – a Light Rail Transit system, or tram, covering 22.6 kilometers of a highway that already cuts through Khon Kaen City.

“To make it happen we needed three elements,” said Suradech.

The first thing the KKTT did was to set up a company to own and manage the project. Instead of setting up the company themselves, the KKTT persuaded five municipalities in Khon Kaen to be the investors in Khon Kaen Transit System Co Ltd (KKTS), established in March 2017 with 5 million baht (US$156,700) in capital.

In theory, if the project proves profitable, the municipalities themselves will gain and have money to spend on further public sector investments in Khon Kaen, thus benefiting the entire city community. The investment, however, needed the approval of the Interior Ministry, which was granted in February 2017.

Although the first such company in Thailand’s provinces, the KKTS is not wholly unique. It is modelled after the Krungthep Thanakom Company, set up decades ago as the investment arm of the Bangkok Metropolitan Administration to own and operate the Bus Rapid Transit system in the capital.

Secondly, the project needed to be approved by the Cabinet, which was granted in October 2017. The Cabinet’s approval was reinforced last month with an official go-ahead granted by the Prime Minister’s Office.

“The third thing we needed was land,” said Suradech. KKTS has two or three plots of land along the route belonging to the five municipalities and is currently in the process of leasing more land from the State Railways Authority of Thailand and the Ministry of Agriculture.

The tram track will run down the meridian of Highway No 2, which is owned by the Highway Department.

The fourth and perhaps most important thing needed for the project is investors. The estimated cost of the Khon Kaen light rail is 15 billion baht ($470 million), of which the KKTS Company will contribute 4.5 billion baht and is seeking to borrow the remaining 10.5 billion baht from foreign investment funds.

According to Suradech, KKTS is currently negotiating a loan with three foreign investment trusts, including one from China that would supply rolling stock from the CRRC Corporation Ltd of China. The second potential investor is European and the third involves a mix of European and US investors. The names of these two investors, he says, is still confidential.

The project is particularly suitable for Private Equity Funds, as the KKTS game plan is to build the Khon Kaen tram in two years (2020-2021), operate it for another two years (2022-23), and then list the company on the Stock Exchange of Thailand (SET).

“There are conditions in the contract,” Suradech said. “They can convert some of their loans into equity, but not more than 49% of the company shares. Or if they want to exit, the KKTS will pay back the loan with interest.”

That interest rate is likely to hinge on how profitable investors believe the project will be. Suradech estimates the internal rate of return (IRR) on the rail operation at 2% in the initial years, with another 11% added on from renting out retail space on land along the route and advertisements.

The KKTT deliberately chose a Light Rail Transit design because it is considerably cheaper than a Heavy Rail Transit, which would require the installment of a sophisticated signaling system from a foreign manufacturer. The infrastructure for a LRT is also much smaller and less expensive to build.

Not everyone, however, is convinced the tram will prove profitable. With only 22.6 kilometers and 18 stations (including one inside Khon Kaen University), the tram will need at least 15,000 riders a day to break even, said Sumet Ongkitikul, research director of transportation and logistic policy at the Thailand Development Research Institute (TDRI), a think tank.

Although Khon Kaen attracts few international tourists, the city has its own airport and is a favored location for MICE events in the Northeast. Khon Kaen University students are another target market.

To bolster ridership in the long run, the tram might require more extensions or strict zoning and a toll system in the city to force people to take the tram, which is difficult to enforce in a free-market environment like Thailand’s.

To control the feeder routes to the planned tram, the KKTT recently acquired three out of the four “song teow” (two-bench, covered pickup trucks that serve as buses in Thailand) routes in Khon Kaen.

Observers think it is incredible that the project has gotten this far, earning the approval and endorsement of so many government agencies under Prayut’s re-centralizing rule. The Khon Kaen model is currently being studied by 14 other provincial cities in Thailand.

“What is remarkable about Khon Kaen is they have the political leadership from the local people,” Sumet said. “What I haven’t seen in the other cities is that kind of political leadership.”

The KKTT has deliberately tried to stay apolitical in Thailand’s highly divisive political scene, with all 20 members vowing to stay clear of entering provincial elections or campaigning.

If the project succeeds it could have widespread ramifications for Thailand’s decentralization process, observers said.

“If they are successful, the (Khon Kaen) governor might not be happy because it would take the limelight away from him because he is supposed to represent central authority,” said Ruth Banomyong, head of the logistic and transport department at Bangkok’s Thammasat University.

“If they are able to generate money and make something sustainable then it tells the other provinces they don’t really need the central government.”

The KKTT, in fact, has gone out of its way to cultivate support of both the possibly outgoing regime of Prime Minister Prayut and the potentially incoming regime of the Peua Thai Party, nominally led by Sudarat Keyuraphan.

“Sudarat was in Khon Kaen not long ago and she said she understood the project,” said Suradech. “But with Prayut, he said if the army wins [the March 24 election] then this is their project.”

Tags: Thailand