High-Speed Airport Rail Project Faces Uncertainty
A crucial high-speed rail project designed to connect three major airports and serve as the backbone for Thailand’s Eastern Economic Corridor (EEC) is currently stalled. The 220-kilometer railway, intended to link Bangkok, Samut Prakan, Chachoengsao, Chon Buri, and Rayong with nine stations, aims to enhance connectivity for airports, industrial zones, and tourist destinations. It is also slated to support the expansion of U-Tapao Airport and the Eastern Aviation City.
Public-Private Partnership Faces Challenges
This ambitious endeavor is structured as a public-private partnership (PPP) between the State Railway of Thailand (SRT) and Asia Era One, a consortium spearheaded by CP Group. Asia Era One secured the concession in 2019, requesting 117.2 billion baht in government investment support. The consortium’s primary stakeholders include CP Group through Charoen Pokphand Holding (87.15%), Bangkok Expressway and Metro Plc (5.14%), China Railway Construction Corporation (5.14%), and Italian-Thai Development (2.57%). The concession agreement encompasses both the construction and operation of the high-speed rail line and the existing Airport Rail Link. The initial agreement stipulated a five-year construction period following a formal Notice to Proceed.
Delays Stem from Multiple Issues
The project has encountered a series of administrative, technical, and financial hurdles. Early challenges involved land acquisition, securing investment promotion approvals, and coordinating designs. Disputes arose over land use, integration with the Thai-Chinese high-speed rail project, and adjustments to the U-Tapao Aviation City plans. The COVID-19 pandemic further disrupted economic conditions, while escalating costs and tighter financing conditions have complicated the project’s viability. As a result, the Notice to Proceed was never fully activated, and large-scale civil construction has yet to commence.
Contract Amendment Proposals Under Scrutiny
Asia Era One asserts that the pandemic significantly altered the foundational assumptions of the original agreement. Reduced passenger forecasts, economic instability, and stringent lending practices made securing financing under the initial terms exceedingly difficult. In October 2021, the cabinet approved principles for COVID-19 relief measures, opening the door for discussions on amending the contract. The consortium maintains that revisions are essential to make the project financially viable.
Proposed Changes to Payment Structure
Key proposed changes by Asia Era One focus on the financing and payment mechanisms. The most contentious aspect involves altering the government’s contribution. Under the original agreement, the government’s investment was to be disbursed only after construction was finished and services were operational. Asia Era One has put forward a “build-and-pay” model, proposing that state support be provided progressively as construction milestones are met. The consortium argues that earlier payments would enhance cash flow, mitigate risks, and facilitate loan acquisition. The proposed amendment would also require the consortium to provide additional guarantees amounting to approximately 160 billion baht and commit to completing construction within five years of the amended agreement’s effective date.
Ministry Resists Shifting Financial Risk
The Ministry of Transport has consistently emphasized that the financing risk should remain with the private concessionaire, a fundamental principle of the original 2019 PPP agreement. Deputy Prime Minister and Transport Minister Phiphat Ratchakitprakarn has repeatedly stated that altering the payment structure would increase the state’s financial exposure. Furthermore, the government is concerned that such significant changes could establish a precedent, potentially encouraging other private operators to seek similar concessions when economic conditions become challenging.
Audit Office Review Highlights Concerns
The Office of the Auditor General (OAG) recently conducted a review of the proposed amendments, issuing 18 observations before clearing the draft. The review prioritized safeguarding public interests, ensuring consistency with prior cabinet resolutions and EEC policies, and establishing safeguards against default. Crucial protections include the proposed 160-billion-baht guarantees, which would cover civil works, system installations, service obligations, and outstanding commitments. The OAG mandated these guarantees be provided within 270 days of signing, with portions released incrementally as construction milestones are achieved. While this review removed a significant legal impediment, the policy disagreement over payment terms remains unresolved.
Future of the Project Uncertain
The future trajectory of this vital infrastructure project hinges on the government and Asia Era One’s ability to bridge their differing perspectives. Despite Mr. Phiphat’s opposition to a “build-and-pay” arrangement, the OAG found no legal objections to the draft amendment, contingent upon its observations and eventual cabinet approval. Should the proposal proceed, it will require submission for cabinet consideration. If an agreement cannot be reached, Asia Era One may need to explore alternative financing avenues under the existing contractual framework. Continued delays could have cascading effects on related EEC projects and diminish confidence in Thailand’s capacity to deliver large-scale PPP infrastructure. The State Audit Office has also warned that ongoing delays could expose the state to potential compensation claims.
