High-Speed Rail Linkup: A Long-Awaited Breakthrough
Thailand to finalise high-speed rail contract in July, halting five-year delay in project implementation
The high-speed rail project, linking airports in Don Mueang, Suvarnabhumi, and U-Tapao, is on the verge of relaunch after a five-year delay, courtesy of the COVID-19 pandemic. Expect a big announcement in July, as the final contract is set to be signed.
The pandemic played a significant role in wreaking havoc on numerous transport sector investment projects, and this high-value (224 billion baht) project was no exception. Owned by the State Railway of Thailand (SRT), the venture is about to see a new dawn as Asia Era One - a Thai consortium led by the Charoen Pokphand Group - steps in with a 50-year concession to operate the service.
The pandemic had far-reaching implications, causing global and Thai economic downturns and elevating uncertainty. Private sector financing and operations took a hit, leading to liquidity problems and unmet payment deadlines for the Airport Rail Link (ARL) project under the contract terms.
In light of these hardships, negotiations between the private sector and the government ensued to revise the project contract, resulting in a considerable delay of over five years.
Chula Sukmanop, secretary-general of the Eastern Economic Corridor (EEC) Policy Committee, told Thansettakij that the contract review is nearing completion, with approval anticipated by mid-June. Once approved, the revised contract will head to the Civil Service Commission for consideration before receiving Cabinet approval. The signing of the contract amendment is planned to take place in July this year.
As of March 27, the SRT Board approved the revised joint investment contract for the high-speed rail project. The agreement consists of two key aspects:
- Public Investment Payment Method - The revised system assures that the state's interests remain intact, as it adopts a build-as-you-pay approach. Once construction costs are settled, the state will own all civil works.
- Security Deposit Requirements - Asia Era One must submit substantial financial guarantees, beyond the original contract framework, worth approximately 160 billion baht. This move ensures the successful completion of the project within five years.
The revised agreement, now agreed upon by both parties, includes five significant provisions:
- Adjusted PIC Payment Structure - Instead of the state making payments upon the commencement of high-speed rail operations - spreading them evenly over ten years, totaling 149.65 billion baht - payments are now made in installments based on construction progress. The total limit is capped at 120 billion baht, with Asia Era One providing additional financial guarantees of 152.16 billion baht to guarantee timely construction and operation. Ownership of constructed assets will be gradually transferred to the SRT as payments are made.
- Revised ARL Investment Rights Payment Terms - Asia Era One will pay the investment rights fee of 10.67 billion baht over seven equal annual installments. The first installment is due upon signing the amended agreement with the SRT, and the company must provide a bank guarantee equal to the ARL investment rights fee and other costs assumed by the SRT.
- Additional Revenue Sharing Clause - If the future project loan interest rates significantly decrease and Asia Era One's internal rate of return exceeds 5.52%, the SRT has the right to request additional revenue sharing, subject to further negotiation.
- Waiver of Notice to Proceed (NTP) Conditions - A memorandum of understanding will waive the NTP conditions that have yet to be met, allowing the SRT to issue the NTP to Asia Era One immediately upon signing the amended contract.
- Mitigating Future Financial Risks - The contractual provisions for force majeure and relief events have been revised to align with other state-private joint investment agreements, providing financial stability in the event of major disruptions.
Additional financial guarantees, worth approximately 160 billion baht, must be submitted by the private sector within 270 days of signing. These guarantees consist of:
- Civil works construction guarantee: 125.93 billion baht
- System installation guarantee: 14.81 billion baht
- Operational quality assurance guarantee: 748.25 million baht
- ARL management rights guarantee: 10.67 billion baht
Upon signing, the private sector must make the first installment of the ARL management rights fee – approximately 1.5 billion baht – with the remaining amount to be paid in seven subsequent installments.
- TAGS
- High Speed Rail
- investment
- contracts
- Thailand
- Covid-19
- Don Mueang
- Suvarnabhumi Airport
- U-tapao1. Thailand authorizes military control over border checkpoints with Cambodia amid heightened tensions2. Gold and Bitcoin prices soar as Trump tariff fears drive safe-haven demand3. Thai Commander: Over 400 protests lodged against Cambodian border violations4. Resident lays claim to 12 million baht found in condo trash, claims to have held cash since 20205. Army Chief orchestrates border closure measures in response to Cambodian incursions
- The high-speed rail project in Thailand, linking airports in Don Mueang, Suvarnabhumi, and U-Tapao, has faced significant delays due to the COVID-19 pandemic but is on the verge of relaunch, with a new operator, Asia Era One, under a 50-year concession.
- The resurgence of the high-speed rail project represents a much-awaited investment opportunity in the transport sector, particularly within the infrastructure industry, with a total value of 224 billion baht.
- Financial institutions are closely watching the progress of this project, as the new contract includes substantial security deposits worth approximately 160 billion baht from Asia Era One to ensure the successful completion and operation of the high-speed rail service.
- The investment in the high-speed rail project is significant not only for Thailand's transport infrastructure but also for the nation's overall economic prospects, as it aims to strengthen the business and finance sectors during the recovery from the COVID-19 pandemic.
