INVESTMENT With about 30 per cent of the state oil and gas company heading for an IPO, the government is taking privatisation firmly in hand
Bids invited for biggest ever share offering

A landmark move for the Thai economy, the sale will boost the financial standing of PTT and the sector

gainst the current backdrop of global uncertainty, the Thai government is sticking to its timetable for the partial sale of its flagship oil and gas company, PTT. The initial public offering, which is scheduled for December 3, will offer up to 950 million new shares, or around 30 per cent of the firm’s registered capital to foreign and local buyers.
Thailand’s biggest-ever IPO, it represents a critical point in the government’s privatisation programme. Bangkok appears determined to show commitment to its ongoing reform pro-cess by pressing ahead with the sale despite the world stockmarket slump and current volatility in the oil market.
PTT president Viset Choopiban says that the move to raise private capital will assist the company to meet its five-year strategic plan, which includes a strong emphasis on developing its natural gas business as well as other key parts of the energy chain.

He believes that the sell-off will improve the financial standing of PTT – formerly the Petroleum Authority of Thailand – and prepare it for the demands of the future, including greater competition within the energy sector. He also sees it as something of a landmark for the Thai economy as a whole.
“If PTT is able to transform itself from a state agency into a private firm, there’s no reason for other state agencies not to push through with privatisation,” he says.
PTT is looking to raise between $450 million and $670 million in the IPO to finance an ongoing expansion programme and manage debt repayments, although the figure greatly depends on the eventual sale price.
Fund managers have suggested that the IPO price should be set considerably lower – perhaps in a range between 67 cents to 89 cents – than the preliminary indicative range of 84 cents to $1.45 originally set by PTT.

There is also the possibility that the government will release only part of the stock to test the market, holding the remainder back until next year when conditions might be more favourable.
Still, there is confidence that the sell-off, whatever form it takes, will be a success given the attractiveness of PTT and its dominance in the dynamic Thai energy market.
The fundamentals of the company – which holds interests in virtually every corner of the industry from upstream exploration and production to downstream refining, distribution and petroleum retailing – look solid. Last month, the company posted healthy profits for the first half of the year, well up on the year before, mainly driven by the growth of its gas business. Although second-half results are predicted to be affected by lower energy prices, PTT’s status as a viable investment vehicle for fund managers is clear.

Pichai Chunhavajira, vice president of PTT, believes the firm’s superior knowledge of the energy industry will protect it from intense competition

Pichai Chunhavajira, PTT’s senior executive vice president, corporate finance and accounting, says that the Bangkok stock exchange listing will bolster confidence in the local capital market.
From early December, it will be among the country’s three biggest shares in terms of capitalisation on the local bourse, alongside companies like Krung Thai Bank and PTT’s unit PTT Exploration and Production.
“PTT will obviously be an asset for Thailand,” says Mr Pichai. He believes that the firm’s established operations and superior knowledge of the Thai energy industry will stand it in good stead for the future, including the advent of more intense competition.
An aggressive development programme worth some $1.8 million is under way that will consolidate PTT’s already formidable market position. Half of this sum will go into the development of its gas business, including building new pipelines and promoting the market for the product, a cheaper and cleaner alternative to oil, although it is looking to scale back its retailing operations.

A pipeline project to connect Bangpakong with Ratchaburi province is on the drawing board and is expected to be completed by 2005, as is a gas separator in Rayong province, which should be operational by 2004.
Additional gas pipelines and gas stations will be installed around Bangkok’s suburban areas to complement the existing network.
With the company’s ambition to become a regional leader in the Asean energy sector, it will undoubtedly be involved in international pipeline projects which are coming to the fore.
Thai environmental authorities recently cleared a controversial 336km gas link from the Gulf of Thailand to Malaysia in which gas could start to flow by late 2003. The $464.9 million pipeline, to be operated by Trans-Thai Malaysia Co, a joint venture between Malaysia’s state oil company Petronas and PTT, will come ashore in Songkhla province in southern Thailand.

There is also movement on the ambitious Trans-Asean Gas Pipeline plan, which would link regional supply to demand centres in Thailand, Malaysia, Singapore, Indonesia, the Philippines, Myanmar and Vietnam.
First proposed in 1996 at a cost of $15 billion, the scheme has been scaled back significantly to a series of smaller spurs, at a cost of $6 billion, to be built over the next decade and beyond. Single pipelines – including the Thai-Malaysia link – have already sprouted up as gas markets have developed, laying the framework for a regionwide gas grid to grow organically. Asean states are due to sign a memorandum of understanding for the gas proposal in July 2002.
Like other states in the region Thailand is keen to use natural gas as a feedstock for major industrial projects and electricity production which is rising steadily as the economy picks up.

Thailand’s oil production is creeping upwards, a further sign of the country’s buoyant energy sector. Chevron now produces 34,000 barrels per day (bpd) and Shell pumps 24,000 bpd although this could jump by a further 10,000 bpd with the expected revival of its Nang Nuan oil field. Unocal intends to ramp up output from its Plamuk and Kaphong fields to 18,000 bpd early next year.
In the refinery sector, the Thai Oil Company – in which PTT holds a 49 per cent stake – is back on its feet after a period of debt restructuring following the economic crisis in 1997. Despite a general oversupply, the company is making headway offering some of the lowest fuel prices in Thailand.

Sunthorn Supapa, managing director of Thai Petroleum Pipeline, says the company must focus on its core strengths and the environment

Chulchit Bunyaketu, Thai Oil’s managing director, says the firm has proved its ability to generate cashflow and now operates with a clearer vision. “Thai Oil is very strong now,” he says.
Thai Petroleum Pipeline Company – in which PTT also holds a stake – is predicting better times ahead as the economy recovers. The company, which earns most of its revenues transporting PTT products, is looking to win new business, not only from PTT but also from the Suwanapoom airport project.
Sunthorn Supapa, Thai Petroleum Pipeline’s managing director, says the company has to come up with new plans to increase its competitiveness in the market, which means focusing on its core strengths. “The priority is to find a better way to generate revenues as well to reduce the expenses,” he says.

The framework has been established for a region-wide gas grid

Greater emphasis on the protection of the environment will also assist the business, says Mr Sunthorn. “We are friendlier to the environment now,” he says. “Pipeline transportation obviously produces less pollution than other methods such as tank truck or tank car.”