Infrastructure

New opportunities for Thai infrastructure investment

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Image Credit: Photo of Bangkok city from Flickr. By Mike Behnken
Image Credit: Photo of Bangkok city from Flickr. By Mike Behnken

Thailand recently signed bilateral agreements with Japan and China, to build two railway trunk lines across Thailand, said a report in The Diplomat,

One line, built with Chinese loans and technology, will link Bangkok and Map Ta Phut in the Thai south through Laos to Kunming, Yunnan, in the north. This is scheduled for completion in 2020 and covers 734 km, at a cost of $12 billion.

The second line is to be built with Japanese capital and technology, crossing Indo-Chinese nations on the west-to-east axis, from Dawei in Myanmar through Bangkok to Phnom Penh in Cambodia. followed with an extension to ending in Ho Chi Minh City and Vung Tau in Vietnam. This would build a vital transport route for the Dawei Special Economic Zone and synergises with the contentious Dawei Port project.

These connections could turn Bangkok into a major ASEAN transportation hub, while enhancing connectivity with China, Japan and other ASEAN markets.

Financed by Chinese and Japanese loans granted to Thailand at low interest, Thailand plans to purchase trains, signal systems and other related facilities from China and Japan separately, though both will share a standard gauge of 1.435 m. This will enable speeds between 160-180 km/h. The challenge lies in integrating the logistics and technical base involving two separate systems.

However, it balances the political demands of Thailand, which has traditionally maintained an extremely neutral stance in engaging with the Great Powers of the region, given its geostrategic position at the centre Southeast Asia, on the periphery of the Indian and Chinese spheres of influence.

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Current State of Thai Rail Infrastructure

The State Railway of Thailand (SRT) is currently struggling with poor financial performance, lacking the funds to upgrade rail infrastructure. Political instability and associated constraints in budgeting and planning also negatively impact the prospect of future upgrading projects. Competition from the expanding highway, road and airport infrastructure of Thailand has also worsened the position of railway networks as a logistics channel.

The SRT’s narrow gauge (one meter) is unsuitable for speeds exceeding 120 km/h, contrasted with the standard gauge train speeds of 160-200 km/h. Investment in standard gauge infrastructure would lead to significant improvements in capacity and speed. The planned Bangkok-Kunming line targets speeds of 160-180 km/h, while the Dawei-Phnom Penh line is targeting 200 km/h at minimum.

This combines passenger and freight services with superior efficiency to the narrow gauge trains currently in use.

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Investment Opportunities

Such projects, while being somewhat uncertain due to their political dimension, can generate knock-on effects for the infrastructure space, especially on a provincial and regional basis. These effects could result in related and peripheral industries like construction, commodities, logistics and transport requiring additional investment.

However, these projects involve the sovereignty of three states. Delays, postponements and cancellations are possible, due to political issues like changes in government, territorial disputes and disputes in the interest rate on loans, The new network will also face difficulties associated with integrating both the logistics and technology involved in integrating the SRT’s 4000 km network of narrow gauge railways.

The disparity between existing and new gauge systems will be a significant challenge to integrate, alongside incorporating Chinese, Japanese and other third-party railway technologies, particularly signal and electric systems which would require significant engineering and logistical expertise. Cooperation may also be impeded by competing commercial concerns and national interests in Thailand, Japan, China and the wider region.

Should these be successfully overcome, Thailand would emerge with greater economic integration, additional connectivity and entrenching itself as a market where regional cooperation with competing Chinese and Japanese economic concerns are are possible and workable.

This creates a large number of opportunities for private equity firms targeting Southeast Asia, specifically the geographic market of the northern Indochinese Peninsula, (i.e. mainland Southeast Asia). While extremely promising, this region presents fragmented markets at different stages of development, with systemic corruption entrenched in governmental systems.

Private equity firms and investors hoping to enter such a market would require a pool of human asset with significant experience in conducting business in the region. In addition, expertise in cultural literacy, awareness of the difference in the business and cultural protocols and systems of the region, and a cohesive language strategy

Related Story: Indonesian infrastructure presents strong market for private equity investments

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Editorial Team

The SupplyChains Magazine editorial team takes great pride in bringing you the best information to help you succeed in your supply chain, logistics or procurement functions. Together, our editors and contributors have more than 50 years of supply chain industry knowledge to share with you.

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