The Kingdom of Thailand Preparatory Survey for Industrial Estate Smart Community Development Project (PPP Infrastructure Project) FINAL REPORT
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The Kingdom of Thailand National Economic and Social Development Board (NESDB) Industrial Estate Authority of Thailand (IEAT) The Kingdom of Thailand Preparatory Survey for Industrial Estate Smart Community Development Project (PPP Infrastructure Project) FINAL REPORT June, 2016 Japan International Cooperation Agency (JICA) Fuji Electric Co., Ltd. InterAct Inc. Pacific Consultants Co., Ltd. OS JR Oriental Consultants Global Co., Ltd. 16-080 The Kingdom of Thailand National Economic and Social Development Board (NESDB) Industrial Estate Authority of Thailand (IEAT) The Kingdom of Thailand Preparatory Survey for Industrial Estate Smart Community Development Project (PPP Infrastructure Project) FINAL REPORT June, 2016 Japan International Cooperation Agency (JICA) Fuji Electric Co., Ltd. InterAct Inc. Pacific Consultants Co., Ltd. Oriental Consultants Global Co., Ltd. Thai Baht 1.00 THB = Japanese Yen 3.34 JPY (September, 2015) Summary ■Outline of the Study The study has examined the feasibility of outsourcing services targeting the Thai industrial estates in Prachinburi Province, Rayong Province, Ayutthaya Province, and Chonburi Province to install, operate and maintain their utility facilities. To this end, it has assessed the existing utility supply systems and related infrastructure, the legal systems applicable to the intended businesses, a market research and demand forecast, detailed designs of the services, viable business schemes, requirements of environmental and social considerations, and potential impacts of the project, while also carrying out the cash flow analysis and risk analysis. Counterparts of the study are the two Thai governmental organizations: the National Economic and Social Development Board (NESDB) and the Industrial Estate Authority of Thailand (IEAT). The study was implemented from January 2015 to May 2016. The project initially planned to provide such outsourcing services as the Energy Service, the Energy Conservation and O&M Service, and the Smart Services (transportation, human resource development, environmental monitoring, and local contributions). In the course of its analysis, however, the study has revealed that the Smart Services are less feasible than the Energy Service and the Energy Conservation and O&M Service, and therefore decided to elaborate on the latter 2 services to undertake facilities planning, schematic designs and cost estimation. Specifically, the Energy Service includes the Air Conditioning Service that replaces and maintains air conditioners, and the Factory Equipment Service primarily to allocate compressors in an intensive arrangement. The Energy Conservation and O&M Service is featured by remote monitoring with the Cloud FEMS and scheduled maintenance on site. ■Study for Realizing the Business The study has examined a business scheme that would establish a SPC in the long run to deliver the Energy Service and the Energy Conservation and O&M Service. As a precondition of establishing the SPC, the project must have potential demands and viable business scale. Under the current circumstances. However, only a small start-up business mainly centering on the Air Conditioning Service and the Factory Equipment Service mainly targeting on Japanese-affiliated small-medium scale factories can be practically implemented, as mentioned in 7.3, due to reduction of large scale projects such as on-site power generation which was led by slowdown in Thailand’s economy. Therefore, the study has explored if the Alliance Agreement and the Agency Agreement are feasible to cover the period until the SPC is established. Under the Alliance Agreement, the consortium members of this study will consult together and tap business opportunities wherever possible, taking advantage of their strengths. The Agency Agreement, on the other hand, selects an Agency Company from the said consortium members, which will act as a liaison to lead promotional efforts and a collective cooperation to form a business. A financing measure depends on the intended business scale and form. Project financing will be required for funding where the planned business has solid actual demand, and is able to maintain a reasonable operating scale. Investment and loan shall be provided approximately at a ratio of 4 to 6 or 3 to 7. Financing terms measure is studied to be obtained by foreign investments and loans from such entities as companies involved in the project planning (the Local Consortium Members), related Thai companies (including Japanese-affiliated subsidiaries), and JICA. Furthermore, loans are studies to be obtained by Japanese banks operating in Thailand as well as local financial institutions. To meet a financial requirement of about 15 billion JPY for the five years, for instance, a funding model comprises investments of 6 billion JPY, including 4.5 billion JPY from some companies centering the consortium members in Japan and the Local Consortium Members, 1.5 billion JPY from JICA’s overseas loan and investment finance program, and the remaining loans from Japanese banks and local Thai banks. The project implementation is scheduled to start with the Alliance or Agency Agreement for the initial 3 years, followed by the establishment of the SPC possibly in the 4th year. To prepare for the SPC, the project must find client companies, develop a business plan, and pursue preliminary consultations with related government agencies including BOI before entering in the 3rd year. The SPC will be then established in the 4th year, obtaining permits and licenses. ■Impact of the Project and Feasibility Evaluation Currently under elaboration, the project intends to provide the 4 companies with the Energy Services that include the Air Conditioning Service (intensive allocation of air conditioners and installation of air conditioning inverters) and the Factory Equipment Service (inverter compressors and intensive allocation of the compressors). The Energy Conservation and O&M Service includes the Cloud FEMS and O&M. When delivered, the Air Conditioning Service will assure an air conditioning capacity of 6,205,865 BTU/H, while the Factory Equipment Service will enable the target factories to stably operate compressors at a power range of 630 kW. An energy efficiency is estimated to increase approximately by 15% resulting from use of the Air Conditioning Service, and similarly by 6% from use of the Factory Equipment Service (compressors). In addition to the above performance indicators, the O&M Service will minimize troubles and failures of the equipment to be operated by the 4 companies. The project will achieve improvement. Employment of 2,760 workers will be sustained, while also a profit will be generated annually in a range of 516,000 and 1,163,000 THB. Furthermore, besides the above-mentioned services suggested by the project, the On-Site Power Generation Service and the UPS-based Factory Power Supply Stabilization Service are also available. EIRR of these businesses is estimated as high as 75.7 to 79.9%. The quantitative impact of the project, albeit difficult to evaluate, includes such primary effects as an increased energy efficiency and stable utility supply, and secondary effects such as increased production and management efficiencies, sustainable employment, and reduced CO2 emissions. In light of the above, the project expects wide-ranging effects, delivering benefits to factory workers and people in Thailand. The feasibility of the project has been verified by economic indicators, and therefore the study concludes that it should be implemented as intended. ■Prospective Challenges Challenges in the project implementation are highlighted below. Risk Sharing among the Member Companies in an Agency Agreement The project implementation is scheduled to start with the Alliance or Agency Agreement to deliver the services for the initial 3 years. The SPC will be subsequently established in the 4th year when a reasonable number of clients are obtained. The member companies will entail different business risks in either scheme of the Alliance or Agency Agreement to be implemented during the initial 3 years prior to the SPC’s start- up. A company acting as an agency will be exposed to more risks associated with business operations, contracts, and responses to the clients. Such risks, when centered on a particular entity, will cause insecurity in the business to be sustained under the Agency Agreement. This may pose a further problem in the SPC’s start-up. It is thus essential to diversify the agency’s risks among the member companies so as to maintain continual business operations. Research to Explore Local Client Companies in Thailand The study carried out interviews with about 100 factories in total, including Japanese-affiliated companies and local Thai enterprises. Brief plant diagnoses were conducted for those interested factories, followed by suggestions of relevant services. The promotional efforts have chiefly targeted these Japanese companies for the reason that the majority of the interested entities are Japanese-affiliated factories. Given this background, the project is likely to target Japanese companies when implemented upon completion of this study. Major reasons of such background are supposed that Japanese-affiliated companies have comparatively higher intension to energy saving than Thai enterprises; and high quality services by Japanese-affiliated companies are attractive to Japanese-affiliated companies in Thailand. Therefore, main marketing target will be Japanese-affiliated companies for the implementation