Electricity Generating Authority Of Thailand (Egat) Business Information, Profile, and History

Company Perspectives:

EGAT's main mission is to run efficient electricity business by providing and transmitting an efficient, reliable, and reasonably priced electric power supply to meet the country's demand in an environmentally responsible way. In light of the country's electricity industry reform, EGAT's immediate mission is also to restructure its organization to further improve efficiency and be prepared for its new role as the center that manages and controls the national grid in a more competitive market.

History of Electricity Generating Authority Of Thailand (Egat)

The Electricity Generating Authority of Thailand (EGAT) operates as a state-owned enterprise involved in the generation and transmission of energy throughout Thailand, selling wholesale power to both the Metropolitan Electricity Authority and the Provincial Electricity Authority. The group produces over 15,000 megawatts (MW) of electricity each year and purchases additional power from independent power producers and small power producers. EGAT maintains a number of hydroelectric, thermal, and alternative energy facilities and offers a variety of energy-related services. Controversy and debate have surrounded the state-owned entity as it works to restructure in preparation for its privatization. The Thai government plans to launch a public offering for EGAT, tentatively slated for 2004.

Background

Thailand's use of electricity dates back to 1887 with the creation of the Siam Electric Company. The firm used steam from burning rice husks to provide power to its customers, a method used through the 1950s. The Thai region proved to have abundant natural resources that could be used for fuel, including rice husks, wood, and bagasse, the dry pulp that remains after sugar cane has been harvested. Hydroelectric resources, lignite, oil, and natural gas were also available in the region but were not utilized until later in the 20th century.

The energy industry in Thailand did not experience much growth until after World War II, when demand for electricity began to rise. The nation's supply during the 1940s and into the 1950s was unreliable at best, prompting the government to take action. In 1958, the Thai Ministry of the Interior enacted the Metropolitan Electricity Authority Act, which in effect established the Metropolitan Electricity Authority (MEA), an amalgamation of the Bangkok Electricity Authority and the Samsen Royal Electricity Authority. The MEA generated and sold electric power until 1961, when its generation capabilities were taken over by the Yanhee Electricity Authority, which had been created in 1959 to exploit hydroelectric power in the area.

During the 1960s, the need for power increased significantly in the Thailand. The region's first major oil-fired plant--the North Bangkok Power Station--was developed in 1961. This was followed by the creation of the Phumiphon Dam, a hydroelectric generating facility that began operation in 1964. Regional power companies struggled to keep pace with demand and it soon became apparent that major expansion was necessary to avoid a collapse in Thailand's energy sector.

Keeping Pace with Demand: 1960s-80s

Power shortages prompted the government to act, and on May 1, 1969, the Electricity Generating Authority of Thailand (EGAT) was created. This state-owned entity was formed by combining the assets of Yanhee Electricity and two other regional concerns, Lignite Authority and Northeastern Electricity Authority. During the 1970s, EGAT used fuel oil and hydro power to supply the region. It added several new facilities to its holdings including the oil-fired South Bangkok Thermal Power Plant in 1970 and the country's second hydroelectric plant at the Sirikit Dam on the Mae Nam Nan tributary in 1974. The company also began to rely on lignite as oil prices started to rise.

Acting under the 1978-85 power generation development plan, EGAT continued to construct new power plants. Thailand's third hydroelectric plant at Ban Pho was launched during this time and was used not only for power, but for irrigation and flood control. A lignite-fueled plant also began operation at Mae Mo and was generating 825 MW by 1987. By this time, Thailand's power industry was made up of three government-owned concerns: EGAT; MEA, which distributed power to Bangkok and the surrounding areas; and the Provincial Electricity Authority (PEA), which distributed power outside of Bangkok.

During the 1980s, the Thai economy and electricity consumption grew at a rapid clip. EGAT continued to push for the development of new hydro-electric facilities but opposition from environmental groups threatened to thwart the company's plans and tarnish its image. In 1988, EGAT's Nam Choan dam project was terminated by the government, marking the first time that a major EGAT project failed to reach fruition. That year proved disastrous for the firm. A drought during the first part of the year took its toll on hydrogeneration, cutting production by nearly 25 percent. Then, typhoon Gay wreaked havoc on Thailand in November and floods caused significant damage to country's southern provinces and to the dams there. The storm was the worst to hit the region in 35 years, killing 650 residents and injuring thousands. To make matters worse for EGAT, the flooding of its hydro systems caused dangerous mudslides and sent thousands of logs--cut by loggers--careening into villages. In September 1989, EGAT announced it would curtail domestic hydroelectric power development but set plans in motion to expand capacity in Laos along the Nam Theun River. This decision drew further criticism from environmentalists, who claimed the dams would destroy crucial tropical evergreen forests and have devastating environmental effects on Laos.

Changes in the 1990s

The landscape of Thailand's energy sector began to change in the 1990s. Thailand began entertaining the idea of privatizing a large portion of its state-owned entities, including those in its energy sector. In 1992, the government created the National Energy Policy Council (NEPC). This council amended the EGAT Act of 1968 in order to end EGAT's longstanding monopoly on power generation, which in turn allowed for the private production and sale of electricity. The NEPC also laid the groundwork to allow independent power producers (IPPs) and small power producers (SPPs) into the Thai market.

In response to these actions, EGAT created the Electricity Generating Public Company Ltd. (EGCO) in 1992. This subsidiary generated power and then sold it to EGAT. In 1994, EGAT gained partial independence from the government and was able to sell electricity, purchase fuel, and purchase electricity from IPPs and other countries for the first time. By 1996, the government was convinced that privatization would be necessary for energy sector reform, for the stability of the Thai economy, and for overall success in the new millennium. Certain members of EGAT management and its trade union--comfortable with the status quo--were not as optimistic about the changes and fought against placing EGAT in the hands of foreign investors.

Driving the government's desire for reform were several factors. Not only would it reduce its role in the energy industry and provide a new source of state revenues, privatization had the potential to increase overall efficiency of the energy sector as well as promote competition. Thailand also believed that making EGAT a public company would ensure future energy availability, encourage private investment, and lead to a greater focus on energy conservation and environmental issues. The downturn in the Asian economy during the late 1990s also forced the issue of privatization. Thailand's economic growth slowed dramatically and energy consumption dropped. The government was forced to launch a major cost restructuring effort which in turn put pressure on EGAT to restructure and adopt cost efficient business practices.

An Uncertain Future

The process of privatization along with opening the energy sector to competition continued in the early years of the new millennium. During 2000, the Ratchaburi Electricity Generating Holding Company Ltd. (RATCH) was created as part of EGAT's privatization plan. Ratchaburi used funds from its public offering--EGAT retained a majority interest--to purchase the Ratchaburi power plant. In 2002, EGAT transferred full control of the plant to RATCH, making it the largest IPP in Thailand.

EGAT dealt with higher oil prices and oversupply in 2000 and 2001, which threatened to prolong its transition into a public entity. The downturn forced EGAT to put off purchasing electricity from several IPPs. During 2002, however, the Thai economy and electricity demand began to rebound. In October of that year, Sitthiporn Ratanopas took over as governor of EGAT. At the same time, Prime Minister Thaksin Shinawatra created the Ministry of Energy to oversee the country's energy holdings. EGAT had spent its history under control of the Prime Minister and anticipated that creation of this new office would greatly reduce the amount of time it took to gain approval for certain actions including the application process for new power facilities.

Under the leadership of Sitthiporn, EGAT continued to work towards its foray into public ownership. In a November 2002 interview with Asiamoney magazine, the governor explained his overall strategy for EGAT, claiming, "the power resources in Thailand are very limited. If we need more power to develop the economy in the future, we will have to import the resources." He went on to state, "my vision is to make Thailand the hub of the Asean power grid through co-operation with neighbouring countries. As you know, this region has a wealth of natural energy resources, such as the immense hydropower potential in Myanmar, upper Laos and southern China, as well as the fossil fuel resources including coal and natural gas in the south. We can help these countries which are less developed to bring their resources on stream. If we can do that, it is good for each country and good for the region as a whole." Sitthiporn concluded, "we should bring all the power plants into one single grid to be called the Asean [Association of Southeast Asian Nations] grid."

While EGAT's initial public offering (IPO) was postponed several times, the Thai government appeared set to go public in 2004. Slated to be the largest offering in Thailand's history, the original plan called for EGAT to be divided into three separate entities: electricity generation, power transmission, and maintenance services. EGAT management argued vehemently against a breakup and in March 2003, Prime Minister Thaksin agreed to offer the company as a whole unit. The size of the IPO remained in debate in the summer of 2003 but officials anticipated that the Thai government would retain a majority interest.

As one of the most profitable state-owned companies in Thailand, the future of EGAT remained very much up in the air and in the public eye. While privatization threatened to unsettle the balance in the country's energy industry and possibility undermine EGAT's bottom line, government officials were determined to see it through believing its completion was crucial to future economic growth. The last decade of the company's history had brought with it much change--the coming years would no doubt bring even more.

Principal Subsidiaries: Electricity Generating Public Company Ltd.; Ratchaburi Electricity Generating Holding Public Company Ltd.

Principal Competitors: CLP Holdings Ltd.; International Power plc; Thai Oil Company Ltd.

Chronology

• Key Dates:
• 1958: Metropolitan Electricity Authority is established.
• 1959: The Yanhee Electricity Authority begins operation.
• 1969: The Electricity Authority of Thailand (EGAT) is formed by the merger of Yanhee Electricity Authority, Lignite Authority, and Northeastern Electricity Authority.
• 1992: The Electricity Generating Public Company Ltd. is established.
• 1994: Deregulation continues in Thailand's energy sector.
• 1996: Plans are set in motion to privatize EGAT.
• 2002: The Ministry of Energy is created in Thailand.