Bangkok balks at Beijing’s conditions on showpiece high-speed rail line

MARWAAN MACAN-MARKAR, Asia regional correspondent September 12, 2019 12:43 JST

A train runs through during the groundbreaking ceremony of the cooperation between Thailand and China on the Bangkok-Nong Khai high speed rail development in Nakhon Ratchasima, Thailand in 2017. © Reuters

BANGKOK — Thailand’s government is delaying China’s ambitious high-speed railway project in the country as questions over financing and liabilities of the $9.9 billion infrastructure initiative remain unresolved.

Sources within Thailand’s transport sector confirmed to the Nikkei Asian Review that behind-the-scenes negotiations between Bangkok and Beijing over the showpiece venture under China’s Belt and Road Initiative are still ongoing.

The Thai government has still not decided how to finance it, said an official connected to the State Railway of Thailand. The government-owned operator is one of the lead agencies involved in the landmark BRI project. “There are still questions about accepting the Chinese loan offer or raising funds domestically through debt in Thai baht,” he said.

“The government does not have any money because so much has been overspent on infrastructure already,” he added.

But that is not the only barrier to the project. Thai officials involved in the negotiations have unearthed new details in the fine print of the project’s terms touching on the contentious issue of who should bear the liability in overseeing the construction of the huge BRI venture.

Thai technocrats had expected the Chinese to include a Chinese consultancy company to oversee the construction, but they were taken aback when the building details said the Chinese company would “not have any liability,” said Ruth Banomyong, head of the department of international business, logistics and transport at Bangkok’s Thammasat University. “This came as a bombshell; it has not become public yet.”

He said this departure from normal business practice will dampen the enthusiasm for the project among Thai technocrats from the finance and transport ministries. The plan is to build Thailand’s first high-speed rail line from Bangkok to the city of Nong Khai, on Thailand’s northern border with Laos.

Thailand's Prime Minister Prayuth Chan-ocha stands next to a model of a high speed rail during the groundbreaking ceremony of the cooperation between Thailand and China on the Bangkok-Nong Khai high speed rail development in Nakhon Ratchasima, Thailand in 2017. © Reuters

“Everyone expected a Chinese consultancy company, but didn’t expect the non-liability factor,” he said. “Officials are familiar with other infrastructure projects, but have not seen conditions like this.”

These twists fly in the face of a message broadcast on Sept. 3 by a senior official of Prime Minister Prayuth Chan-ocha’s government that plans were on track for the first phase. The 873-km high-speed train is to begin operations in four years. Traisuree Taisaranakul, deputy government spokesperson, told reporters that the 252-km stretch from Bangkok to the northeastern province of Nakhon Ratchasima will start by 2023.

A promotional video released on Sept. 3 seemed to resolvethe question of financing. The issue has dogged the project since Prayuth, who has led the junta since 2014, embraced the Chinese initiative. The video revealed that Thailand will bear the entire cost of the first phase, amounting to 179 billion baht ($5.8 billion).

That raised eyebrows in Bangkok’s financial and diplomatic circles, as there had been no hint of such funding on the table. In January, ahead of the 27th round of official talks of the Thai-Chinese railway committee in Beijing, the Thais were still considering an offer of a loan from the Export-Import Bank of China with a 2.3% interest rate to finance the project. Some Thai officials reportedly found the rate too high.

Insiders who have followed the Thai-Chinese negotiations confirm that Prayuth and his Chinese counterpart, Prime Minister Li Keqiang, have erupted in separate “fits of rage” over the unresolved issue of financing. Bangkok was also annoyed by a diplomatic snub two years ago, when the Chinese did not invite Prayuth to the first BRI forum amid delays in the negotiations.

But by late April this year, ties between the two countries appeared to be back on track, after Prayuth was welcomed to the Chinese capital for the second BRI forum. Prayuth told Li during his visit that Thailand will push to meet a 2023 completion deadline.

Chinese President Xi Jinping, right, shakes hands with Thai Prime Minister Prayut Chan-ocha before the bilateral meeting of the Second Belt and Road Forum in Beijing on Apr. 26. © AP

China’s rail footprint in Thailand is part of a broader regional investment to connect its southern region of Yunnan to Singapore, on the furthest end of mainland Southeast Asia, via high-speed trains. Chinese builders are already carving their way through Laos, through which a section of the high-speed route will pass before continuing into Thailand.

According to Joe Horn-Phathanothai, founder of Strategy613, a Bangkok-based investment consultancy for Thai and Chinese companies, the Thai-Chinese rail project is “certainly the cornerstone project” between the two countries. “This is because it is a strategic investment by the Chinese to link China to Southeast Asia via rail, and of all infrastructure, high-speed rail reigns supreme.”

Chinese prestige is also at stake, he added. “Even if this particular rail line does not qualify as high-speed per se, it utilizes China’s hard-acquired know-how from its domestic high-speed rail venture.”

The stakes for China to build its first BRI project in Thailand were raised after another Chinese foray to build a coal-fired power plant in southern Thailand was suspended two years ago due to local opposition. The Power Construction Corp. of China was the lead contractor in that 32 billion baht project to break into the large infrastructure field, which has been dominated by Japanese and European ventures.

China’s rail venture has profited from Beijing’s deft diplomacy, too. It received a shot in the arm following Thailand’s 2014 coup, which was led by Prayuth, at the time the powerful head of the army, to topple the elected government. The junta conceded to China’s connectivity blueprint out of gratitude for Beijing’s recognition of the military regime, unlike Western governments, which condemned it.

But even as talks for the project got underway, officials within the junta balked at China’s rail plans eyeing land on either side of the tracks to be absorbed into its designs “by using proxies,” a confidante of Prayuth revealed. “This was not a Christmas gift. We were told by our neighbors to be watchful of the conditions in the Chinese proposal,” he said.

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