Map Ta Phut, oil prices head list of business influences to watch in 2010

In the second of the year-end series, the Business Desk presents the top 10 issues in 2010 that business communities will need to take into account, because they could affect their operations next year.

MAP TA PHUT

Aside from export and domestic spending, private investment plays a key role in boosting the economy. However, while the first two engines are gaining speed, the third depends largely on the government's handling of the Map Ta Phut fiasco.

The missing parts of the jigsaw for approval of industrial-development projects are regulations on health-impact assessment (HIA) and an independent environment body, which remain under discussion by the four-party panel chaired by former prime minister Anand Panyarachun. Until these are completed, nobody knows when the 65 suspended projects, with a combined investment of Bt230 billion, will be able to proceed.

The Fiscal Policy Office estimates that the suspension could eat into economic growth by 0.2 to 0.5 per cent annually. The impact could be even greater if new foreign or local investment is diverted elsewhere, on fears of legal uncertainty.

All involved now expect the legal environment to be cleared up next year. If so, the outcome is expected to address industrial-development-related problems around the country. It will also drive huge investment in programmes to cut down on pollution levels.

If there is no legal clarity, the economic engine of private investment may fail to propel economic growth and Thailand's competitiveness in the petrochemical and steel industries could suffer. As power plants are also involved, prepare for higher electricity bills if no resolution is reached to pave way for future investment.

OIL PRICES

The Organisation of Petroleum Exporting Countries expects global oil demand to increase by 820,000 barrels per day in 2010, to reach 85.13 million bpd. It is meeting today to discuss prices and output quotas, which will determine oil prices next year. Tightening physical oil supply and demand fundamentals in 2010 could prop prices up, as well as the weak US dollar and falling oil inventories.

Analysts have come up with a price range of US$72 to $85 per barrel next year on economic growth, with Bank of America expecting the highest rate, averaging $85 throughout the year with risks that the price could spike above $100 by 2011 because of a combination of loose monetary policy and dollar depreciation.

As seen this year, higher oil prices will push up the prices of other commodities, particularly gold, which is a safe haven for investors in times of a weak dollar. JP Morgan expects gold to hit $1,400 per ounce in the second quarter and $1,200 in the fourth quarter.

Notably, 90 per cent of energy consumed in Thailand is imported while the alternative energy development plan is in the infant stage.

PROPERTY SECTOR

Property developers have benefited largely from the Bt300,000 tax allowance this year, as residential demand rose in contradiction of earlier forecasts of sharp contraction due to the economic crisis. However, when the incentive expires on March 28, if there is no extension, the impacts are expected to be small.

LPN Development's managing director Opas Sripayak believes that the market will enjoy continued high demand, particularly in city condominiums.

Yet residential prices could increase by 5 to 7 per cent because developers no longer have the ability to draw more buyers, said Preuksa Real Estate president and CEO Thongma Vijitpongpun. Land & Houses president Anant Asavabhokhin said the cost could rise further if the government tightens environmental-impact assessment rules on property development.

Let's see if the developers can achieve their forecast 5-per-cent industry growth rate.

3G'S FUTURE

The mobile-phone service industry is keeping a close watch on whether the National Telecommunications Commission (NTC) will be able to grant the long-awaited third generation (3G) 2.1-giahertz licences in 2010.

Both the telecom and broadcasting industries have also been watching closely whether the law governing the establishment of the new regulator, the National Broadcasting and Telecommunications Commission (NBTC), will be finished in 2010.

The NTC has yet to finalise the rules for auctioning the 3G 2.1GHz-spectrum licences. Telecom industrialists now expect the licences to be auctioned in the middle of 2010.

At the same time, the House of Representatives committee is making a final review of the NBTC draft law, which will then be submitted for Parliamentary consideration. Once the law takes effect, the process of appointing commissioners to the NBTC will begin. The NBTC will replace the NTC in regulating both the telecom and broadcasting industries.

Article 90 of the Broadcasting Act of 2008 allows the NTC to oversee community radio and cable TV pending the creation of the NBTC.

ELECTRIC-TRAIN PROJECTS

Pressure from oil prices has changed the lifestyles of Thai consumers, and electric-train development has been a focus for property developers who are attempting to cater for home-buyers' most preferred choices and locations.

However, huge uncertainties remain for Thailand's master plan for developing the electric-train network. The 10-year plan, starting next year, encompasses 12 lines, but their future could be hampered by funding difficulties and political involvement.

Of the 12, it is becoming clear that Airport Rail Link will be operational next year and construction will begin on half of the 23-km Purple Line. But the other two contracts for the Purple Line have not been signed, and the State Railway of Thailand has been unable to launch bidding for Red Line contracts this year as planned.

The construction of the 12 lines, involving investment of more than Bt800 billion, will lead to huge demand for workers, massive property development along the routes, attraction to the capital city, and importantly a tremendous cut in fuel demand and hence Thailand's economic competitiveness. But to put words into action requires the political will to push through the master plan, despite financial difficulties and political meddling.

AGRICULTURAL GOODS

The 10th national economic plan puts emphasis on the farm sector, to boost farmers' incomes and way of life. According to the Office of Agricultural Economics, the outlook is bright, thanks to the world's economic rebound, and thanks, surprisingly, to global warming, which is expected to cause natural disasters in other agricultural-exporting countries. Rising oil prices will also raise demand for fuel crops.

Important crops including rice, rubber, cassava, palm oil and sugarcane will benefit from higher demand, as other countries face draught and natural disasters.

However, the sector could be hit by higher oil prices, which would raise production costs, as well as fierce competition from rival countries whose currencies have weakened against the US dollar. Vietnam's devaluation has already shown a negative effect.

Overall, agricultural prices are not expected to return to the heyday levels of 2008, the office says.

ECO-CAR LAUNCH

Thailand's automotive landscape is set to change with the launch of eco-cars from next year onwards. Six manufacturers - Toyota, Honda, Nissan, Mitsubishi, Tata and Suzuki - have signed up to join the production scheme, with Nissan planning to launch its March next March. Honda could follow suit next year, while Suzuki has confirmed that it will launch its eco-car in March 2012 and has already started construction of its factory.

Given the spectacular success of small cars like the Mazda2 - thanks to increasing oil prices - many expect a warm welcome for the eco-cars in the Thai market and overseas.

Market analysts at Mazda and Chevrolet expect passenger car sales to rise to equal those of pickup trucks, which were the first champions of the Thai auto industry. Pickups now control 60 per cent of new vehicle sales.

DON MUEANG REOPENING

Thai and foreign travellers should know next year whether Don Mueang Airport will be reopened again as Bangkok's second airport, operating as well as Suvarnabhumi Airport. International airlines, represented by the International Air Transport Association (IATA), have repeatedly criticised the idea of re-opening the old airport.

Airports of Thailand president Serirat Prasutanond says his company will hire the International Civil Aviation Organisation to study the dual-airport concept.

Don Mueang is now the home of two domestic airlines, Nok Air and One Two Go, as well as international charter flights. The Finance Ministry has said that if Don Mueang is reopened it will delay the investment of Bt70 billion on expansion of Suvarnabhumi Airport.

Once reopened, Don Mueang could also be used as a maintenance centre and for other aviation purposes.

INTEREST RATES

The United States Federal Reserve is expected to keep its policy rate ultra low, at 0 to 0.25 per cent, throughout 2010 - or at least for the first half of 2010 - in an environment of fragile economic recovery and fluctuating industrial demand and unemployment.

With low inflationary pressures, Thai economists believe the Bank of Thailand will follow suit. Raising rates before the Fed does so would further strengthen the Thai baht and cause more pain for exporters. Higher rates would also increase the central bank's foreign-exchange management costs, as inflows would increase liquidity. Bonds would have to be issued to absorb liquidity and higher interest rates would increase the cost.

The good news is that the rate might be hiked by 50 basis points in the second half of 2010.

LOGISTICS DEVELOPMENT

Fortunately, the State Railway of Thailand (SRT)'s fishy problems have been disrupted this year. This led to perfect timing for the government's implementation of its logistics development plan on an "integrated" basis.

A lot of infrastructure projects, worth hundreds of thousands of millions of baht are expected to find their feet next year. The Transport Ministry is expected to allocate at least Bt100 billion next year on the 400-kilometre double-track railway project in various parts of the country.

"Logistics" will then become more than merely "infrastructure" construction. There will be a big government push to achieve the lowest possible logistics costs to enhance Thai companies' competitiveness. The major ministries of Transport, Commerce, Finance, Industry and Labour are expected to work at it more closely in 2010.

Market liberalisation remains to hottest issue for Thai logistics service providers in 2010. Meanwhile, the National Economic and Social Development Board is likely to reveal the country's 2012-2017 logistics-development strategy plan next year.

Following the previous plan, logistics costs have been targeted at 16 per cent of gross domestic product in 2011, down from 19 per cent in 2005.