Thailand:  Environmental Market Analysis

• Country Overview
• Market Estimates and Analysis
• Foreign Competition
• Regulatory Impact

COUNTRY OVERVIEW

As one of the youngest and fastest-growing environmental markets, Thailand is a classic example of a developing country attempting to balance its overarching economic ambitions with the search for solutions to environmental degradation.

Since the early 1990s, Thai officials have recognized the environmental impact of unprecedented growth, particularly in the Bangkok metropolitan area and on the Eastern Seaboard. Economic growth was fueled initially by agricultural commercialization and diversification, then by rapid industrialization, which resulted in a heavy concentration of people and economic activity in the region surrounding the Bangkok capital.

Although the Royal Thai Government (RTG) has set a course of rapid economic growth, international pressures, growing public awareness, and a series of environmental disasters have all focused attention on the need for greater environmental protection. Regulations are largely in place and recent regulatory policies have tried to provide time-bound enforcement mechanisms. Warnings, fines, and plant closures demonstrate increased enforcement, which has supported the country's environmental market.

The government also demonstrated its support of the pollution control equipment market by lowering tariffs to 5% or less on assembled imports, providing tax incentives to new overseas industrial investors, and providing low-cost, affordable loans to local manufacturers to purchase equipment through a Green Fund administered by the Industrial Finance Corporation of Thailand. The RTG also supports an ISO 14000 series of international standards and has initiated the "Polluter Pays Principle" to support  environmental remediation.

The economic crisis has caused the suspension of most government-funded environmental projects for FY 1998 and 1999. Budgets for 1999 have been frozen at 1998 levels. The private sector will become increasingly involved in funding environmental infrastructure projects on a "privatized" basis in the future since the government can no longer fund many projects. Even amidst the economic slowdown, the Pollution Control Equipment sector ranks fourth among leading industry sectors for U.S. exports and investment in Thailand for nonagricultural goods and services, according to 1999 reporting by the U.S. Department of Commerce Foreign Commercial Service and U.S. Department of State officials.

Industry sectors to concentrate on include food processing, electronics, textile, pulp and paper, and the petrochemical industry, since these are major exporters and are earning foreign currency. Market competition is strong with Japan, Finland, Denmark, Germany, England, and France.

MARKET ESTIMATES AND ANALYSIS

The tables below describe numbers of public complaints filed against specific industrial sectors or according to environmental media. Although the media-based statistics help point generally toward the type of equipment and services that are likely to be in greatest demand (i.e., water, air, waste), we are ultimately concerned more with the specific industries (or individual firms) that are under the greatest pressure to purchase environmental solutions. It is among those industries that we can hope to identify actual customers. Unfortunately, the most recent statistics for manufacturing industry complaints are available only for 1992 and cover only 495 total complaints. Nevertheless, for the purpose of this analysis, we assume that the relative number of complaints per industry remains the same today.

Cases of Pollution Complaints

Complaint by Industry Sector, 1992

The highest priorities for near-term environmental business development are summarized below. Also included is data describing the relative size of each sector. Relative Value of Production points to the total size or importance of a segment�s contribution to the Thai economy. The production Index for 1998 provides the best available indicator of in-crisis segment performance. Environmental Complaint Data (although available only for 1992) is an indicator of pressure to invest in environmental solutions.

Key Environmental Demand Indicators

The upper right quadrant of the following figure represents potential buyers who have the greatest combination of both motivation and ability to purchase environmental goods and services. The size of the circles indicates the approximate relative size of each industry.

Environmental Sales Opportunity Ranking

Industrial Equipment

Various organizations and agencies have provided the following environmental market-size estimates and forecasts.

Size of Environmental Markets in Thailand

Pollution Control Equipment (US$ Millions)

Air Pollution Monitoring Equipment and Services (US$ Millions)

Exchange Rates: US $1=45 Baht
Estimated Future Inflation Rate: 11%
Last Year�s Import Market Share (Percent for U.S. and major competitors): U.S.=90%, France=5%, Sweden=5%.
Notes to table:

1) Total market size estimate includes only air pollution-monitoring equipment and monitoring services.
2) The local production statistics represent the value for monitoring services only.
3) Last year�s import market share information was based on industry interviews.
4) Exports are assumed to be zero.

Source: USDOC, International Trade Administration March 1, 1998

Water Resources Equipment & Services (US$ Millions)

Exchange rate US$1=40 Baht
Source: USDOC, International Trade Administration

A general rule that we apply to the distressed economies of Asia is that environmental demand is likely to be strongest in those sectors of the economy with the strongest economic performance. Only those industries with sufficient revenues can afford to purchase environmental products or make production process modifications. To the extent that economic performance data is available, we can identify the most robust sectors of the economy where we expect to see environmental demand. To further inform our efforts to discover high growth/high demand sectors, we also look at export performance. Economic recovery in Asia will continue to be led by those industries with the greatest export success. These exporting industries will most likely have sufficient capital to purchase environmental products and services.

An analysis of production indices, export orientations, and associated trends clearly revealed that various industry sectors have had very different experiences since the onset of the financial and currency crisis. A summary of manufacturing performance is reproduced below.

Production Index for Various Manufacturing Industries, 1998

Infrastructure Projects

The Thai government spent about $600 million in environmental projects in 1996, compared to $360 million in 1995. In the next five years, investments in Bangkok�s wastewater treatment will reach $1.6 billion nationwide and $400 million in the provincial areas. In addition, the Asian Development Bank (ADB) is funding solid waste, waste/wastewater treatment projects, including preparations for the estimated $500 million Samut Prakarn wastewater treatment and collection project. In December 1995, ADB extended a $150 million loan to cover equipment procurement and construction costs.

The National Environmental Quality Act of 1992 has spurred private-sector interest in infrastructure privatization. However, initiatives to privatize environmental infrastructure plans have been hindered by political changes, interagency strife, technical difficulties related to construction, and local opposition to new construction. Successive changes in government and the lack of clear directives from leaders have added to confusion over the concept of privatization and the formidable opposition to private-sector ownership. The absence of effective cost-recovery mechanisms has also not helped.

The "not in my back yard" (NIMBY) syndrome has created bottlenecks in environmental projects. In 1996, 3,000 villagers from nearby provinces protested the groundbreaking ceremonies for the $96.4 million, 1,000 ton-per-day integrated hazardous waste treatment plant to serve both BMA and Eastern Seaboard. The treatment plant was held up as the key building block in the process to privatize industrial waste management nationally.

FOREIGN COMPETITION

Structurally, the environmental industry provides good opportunities for multinational providers of environmental goods and services. Market share is more easily captured through partnerships with domestic companies. In the last two years, large domestic conglomerates have been diversifying into consulting and engineering services. Several start-up environmental companies also have entered the marketplace, providing further competition.

Critics, however, charge that tendering in Thailand is notoriously grueling. Contractors often are caught in the middle of political turf wars. Thai policies sometimes have overlapping or competing functions. In many cases, it is unclear what policy guidelines must be followed or how projects will be undertaken and by whom. In addition, contractors often find executing agencies lack the requisite experience in highly complex, technical projects. Contentious tenders have shown that contracts are not always decided by a bidder�s technical and financial strengths. Having highly influential partners and political connections more powerful than one�s competitors have proven to be equally, if not more, important to success.

By international standards, the Thai tendering style has plenty of detractors. Difficulties arising in the tendering process have discouraged some firms from actively bidding. The shortlists are considered extensively long and profit margins remain too low for potential projects to be considered worthwhile. Overlapping government functions have also led to confusion over jurisdiction of projects. Critics like to point to Bechtel Corporation�s (California) domestic experience. In 1993, Bechtel was awarded a U.S. AID-funded $200,000 feasibility study contract under open bidding for an integrated chemical-hazardous waste treatment facility to be located on the Eastern Seaboard. Bechtel completed the study by September 1993, concluding that the estimated $164 million facility would be viable. Despite strong support from the Industrial Estate Authority of Thailand (IEA) which helped conceive the plan, the Bechtel proposal foundered and eventually lost favor to a Ministry of Industry (MOI) joint plan with Waste Management International (WMI, London) for a master stabilization/landfill facility in the same region.

The environmental consulting and engineering sector in Thailand is estimated at $100 million. Several factors drive environmental consulting & engineering sales in Thailand:

• greater emphasis on regulations and enforcement
• growing public awareness
• high investment in environmental infrastructure
• private-sector participation.

Environmental Impact Assessment (EIA) requirements now cover smaller projects and the types of projects requiring EIAs have increased. Enforcement remains slow but non-governmental organizations and the public are effective in pressing for tougher action.

In Thailand, the consulting and engineering market is divided between domestic and foreign-based companies with local offices or representatives. By 1995, only 35�40 firms were registered to conduct EIAs with the Office of Policy and Planning, and only 150 individuals were licensed to conduct EIA work. U.S. consulting and engineering firms have an especially strong presence in solid waste management.

REGULATORY IMPACT

Environmental Agencies

The most dramatic regulatory changes came in 1992, when former Prime Minister Anand Panyarachun�s administration revamped the country�s environmental management framework and restructured key environmental agencies under the National Environmental Quality Act. The law upgraded to cabinet status the National Environmental Board, absorbing it into the Ministry of Science, Technology, and Environment (MOSTE). The structure is now more streamlined. Three new environmental departments were established under MOSTE: Pollution Control, Environmental Policy & Planning, and the Environmental Quality Promotion. A new Wastewater Management Authority (WMA) was created in 1995 within MOSTE to focus on developing and operating wastewater schemes.

The Pollution Control Department (PCD) has the following general responsibilities:

• Establishing plans, measures, or standards of pollution control
• Advising other agencies regarding the technical engineering as solid waste disposal facilities, wastewater treatment plant design, etc.
• Dealing with urgent environmental issues such as the release of sulfur dioxide (SO₂) from Mae Moa Power Plant in the north of Thailand or toxic fumes from Maptaput Industrial Estate on the Eastern Seaboard
• Promoting "green" technology and R&D to develop appropriate technologies for pollution control and abatement
• Investing in Bangkok and the major cities of each region for environmental quality improvement and pollution control.

In 1998, PCD engaged in the following specific activities:

• Publishing a public manual for pollution prevention and remediation of toxic substances
• Establishing industrial environmental performance indicators
• Providing technical training for officers in pollution monitoring and management
• Promoting economic tools such as tax incentives and pollution charges
• Establishing a Code of Practice in Solid Waste Management
• Encouraging the public and private sectors in pollution mitigation such as waste separation and recycling
• Establishing water effluent standards from point sources
• Applying new technology to minimize water pollution.

The Pollution Control Department has the main responsibility for environmental protection under the National Environmental Quality Act. However, environmental regulations are often subsumed in laws not directly related to the environment including, for example, the Public Health Act of 1992 and the Factory Act of 1992. Therefore, many different government agencies bear responsibility for environmental issues.

Influential Environmental Agencies

Thailand has undergone a period of institutional strengthening. Conflicts between MOSTE and the Ministry of Interior appear to be largely resolved. Politically, the new departments are finding solutions to interagency turf battles, notably with the Public Works Department at the Ministry of Interior and the Department of Industrial Works at the Ministry of Industry. It appears that higher levels of activity by MOSTE are keeping environmental issues firmly on the political agenda.

In 1994, the Thailand Environmental Institute, an independent, nonprofit organization, was established by former government ministers to coordinate environmental issues among government, non-governmental organizations, and the private sector. Environmental awareness continues to spread in industrial circles.

Environmental Regulations

In addition to the restructuring of agencies, legislation was modified and upgraded and penalties were stiffened. MOSTE introduced the Hazardous Substances Act controlling the import, production, use, and disposal of hazardous substances. The ministry modified the Factories Act, raising penalties under the "Polluter Pays Principle" against industrial plants releasing pollutants. MOSTE also strengthened industrial wastewater pollution legislation by identifying new pollution sources and providing deadlines for compliance.

Environmental Legislation

Enforcement

While mechanisms for enforcement are in place, the lack of effective implementation, compounded by widespread corruption on all government levels, poses a tremendous challenge to environmental measures. As with many other Asian countries, enforcement is erratic. Inadequate manpower and a meager environmental budget reflect the absence of political will. In addition, enforcement is challenged by the cultural Thai tendency to avoid litigation and the courts.  However, the situation may be improving. Recent regulatory policies have tried to address enforcement weaknesses, and Thai officials are increasingly committing significant investments to environmental protection measures.

According to PCD, the breakdown in enforcement in Thailand is due to multiple factors. As a developing country, Thailand places the greatest emphasis on economic development, whose policies create many conflicts with environmental protection efforts. Insufficient financing is another major impediment to environmental protection. Also, government agencies do not act fully upon their powers and environmental laws themselves provide few penalties for violators.

Factory owners deal primarily with the Department of Industrial Works on matters related to registration and revocation of licenses to establish and operate industrial facilities. Environment-related complaints are submitted to various agencies, such as PCD, DIW, or the Bangkok Metropolitan Administration (BMA) Public Health Department. After receiving complaints, PCD monitors pollution point sources and submits the results to the agency authorized to take enforcement action. PCD can take action in those cases where no other agency has specific responsibility or chooses not to act.

Over the past 12 months, the government has gone from calling for tough new enforcement standards and penalties to promising temporary delays (2 to 3 years) in implementation schedules. Thailand�s economic realities have also rekindled interest in incentive programs over traditional "end-of-pipe" measures. All these developments are intended to ease the compliance burden industry faces but are also reducing demand for environmental technologies and services. Economic recovery will bring a gradual return to stricter enforcement activity and private investment in environmental solutions.

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