EEC’s Role in Shaping up Thailand 4.0

10 October 2017

Somkiat Tangkitvanich

Saowaruj Rattanakhamfu

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Key Messages (1)

• The EEC is a strategy to implement the Thailand 4.0 vision in a right direction after the failure of previous schemes.

• The EEC has 3 pillars: infrastructure upgrade, investment facilitation and super-generous incentives.

1 Infrastructure • U-Tapao airport, dual-track railways and motorways are likely to be developed as

planned. However, the development of high-speed rails, new smart cities and world-class universities are unlikely to materialize in the near term.

• The government should only invest in infrastructure projects with high benefits and low negative impacts on the environment.

2 Investment facilitation

• The EEC will unlock existing regulatory obstacles and integrate fragmented public service delivery.

• The lessons learned from regulatory reform and integrated public service delivery in the EEC should be applied nationwide.

1

2

3

Key Messages (2)

3 Super-generous incentives

• Tax incentives would induce additional investment in targeted industries. However, it is very costly and has limited effectiveness.

• Most new investment will be in the sectors that Thailand has comparative advantage

• Existing industries: tourism, automotive and auto-parts, and healthcare services.

• New industries: aviation MRO, logistics, and automation.

• The success of the EEC should be measured by the increase in technological capabilities of the country and higher skill of Thai workers.

• Effective investment attraction of high tech companies requires

• holistic programs, including research support, skill development & regulatory reform.

• universities & research institutes to engage in R&D activities with private investors.

• The government should set up an industrial research institute in the EEC

• Government procurement should be used to build technological capabilities for smart cities and rail system projects

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EEC Act (come into force in Q4, 2017)

The Evolution of Ideas

SEZs: Border provinces

Super-Clusters & 10 S-Curves

Thailand 4.0

Eastern Seaboard project

• The EEC aims to implement the “Thailand 4.0” vision after low uptake of previous schemes

June 2014 September/November 2015

April 2016

June 2016

EEC

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3 Pillars of the EEC

Infrastructure upgrade (0.7 trillion baht in 5 years)

Super-generous incentives Investment facilitation

• The implementation of the EEC is based on 3 pillars.

One-stop service administered by the EEC Office Existing S-Curves:

• Next-generation automotive • Smart electronics • Affluent and wellness tourism • Agriculture & biotechnology • Food for the future New S-Curves: • Robotics • Aviation and logistics • Biofuels and biochemical • Digital • Integrated healthcare

• Airport • Seaports • Railways • motorways

1 2 3

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EEC Administrative Structure

EEC Policy Committee, chaired by PM

EEC Management Committee, chaired by Ministry of Industry

EEZ Policy Committee, chaired by PM

Formulate policies and approve area development plans

EEC Office Secretary-General:

Dr. Kanit Sangsubhan

NCPO ORDER no. 2/2017

Propose area development plans and policies

Determine special areas and promoted sectors

Provide one-stop service

Approve licenses on establishment of the enterprises/factories

DRAFT EEZ BILL (September 2017)

EEZ Office CEO: Secretary-General

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LAEM CHABANG PORT

MAP TA PHUT PORT

U-TAPAO INTERNATIONAL AIRPORT

SATTAHIP COMMERCIAL PORT

CHACHOENGSAO

CHONBURI

RAYONG

HIGH SPEED TRAIN

MOTOR WAY

DUAL-TRACK RAILWAY

Four Areas of Investment

4 Core Areas

15 Core Projects

Many Ministerial projects

• U-Tapao international airport and aircraft maintenance

• Map Ta Phut port (phase III) • Laem Chabang port (phase III) • Sattahip commercial port • Dual-track railway • High-speed train • Highways and Motorway

• Next-generation automotive (EV/AV)

• Aviation industry, Robotics, Smart electronics

• Advanced petrochemical and bioeconomy

• Medical hub

• Tourism

• Global business Hub/Free economic zone • New cities, inclusive growth • Public utilities

EECi Innovation hub

Digital infrastructure: Digital park, Data center

= +

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Infrastructure Upgrading

• U-Tapao international airport 215 billion baht

• Map Ta Phut port (phase III) 10.15 billion baht

• Laem Chabang port (phase III) 35.3 billion baht

• Sattahip commercial port 2.04 billion baht

• Dual-track railways 64.3 billion baht

• Motorways 35.3 billion baht

Upgrading existing projects

DONMUANG INTERNATIONAL

AIRPORT

SUVARNABHUMI INTERNATIONAL

AIRPORT

LAEM CHABANG PORT

MAP TA PHUT PORT

U-TAPAO INTERNATIONAL AIRPORT

SATTAHIP COMMERCIAL PORT

CHACHOENGSAO

CHONBURI

RAYONG

HIGH SPEED TRAIN

MOTOR WAY

DUAL-TRACK RAILWAY

Planning new projects (still early stage)

• High-speed train 64.3 billion baht

• Smart cities • Digital park • EECi

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U-Tapao International Airport

• Cornerstone of EEC • Budget: 200 billion baht • Responsible Agencies: U-Tapao international

airport, Royal Thai Navy • The 2nd terminal, with the capacity of 3 million

passengers per year, will be opened in August 2017

• Investment budget of 8 billion baht for the 2nd

runway is approved • The 3rd terminal will be based on PPP, and

scheduled to be finished in 5 years

U-Tapao airport development is likely to stimulate

• affluent, medical & wellness tourism • aviation: MROs, aircraft parts, training, • logistics (air cargos)

Defense Research Industry Research Centre

Medical & Education Zone

Navy’s Masterplan Development Zone

Commercial Gateway

Airport operations

Free Trade Zone

Cargo Handling

Maintenance Repair and Overhaul (MRO) Aviation Training Center

Utility System

Freight Rail Yard

Mixed Use

Community Park and Retail

EXISTING RUN

WAY 1

RUNW

AY 2

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Laem Chabang Port Phase 3

• Designed to increase the capacity for cargos from 11 million TEUs to 18 million TEUs

• Will be expanded from export-import port to transshipment port for distribution to CLMV

• Budget: 88.1 billion baht; PPP (private 53.1 billion baht) (2018-2022)

• Responsible agency: Port Authority of Thailand • Currently under PPP project preparation.

Bidding is expected at the end of 2017

Requires land reclamation and has to pass EIA amidst community opposition

CHALLENGES:

RO-RO

E1

F1

F2

SILT POND

E2

Area: 2,572 Acres Total Capacities 18M. TEU/Year

Container

Container

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Map Ta Phut & Sattahip Ports Another 1,000 rai will be added to Map Ta Phut Port Cargo capacity will be expanded from 25 to 35 million

tons/year Responsible agency: Industrial Estate Authority Budget: 10 billion baht

• Sattahip commercial port will be developed to be ferry port to support tourism and facilitate goods transportation to other ports

• Two ferry ports and a terminal are planned to be completed by 2020

• Responsible agency: Royal Thai Navy • Budget: 2.0 billon baht (2016-2020)

SEDIMENT RETENTION POND

Requires land reclamation and has to deal with community opposition

CHALLENGES:

The project may be delayed as the Navy lacks experiences in commercial project management

CHALLENGES:

Sediment Retention Pond

Warehouse and Natural Gas-related Business

Breakwater, section 1

Breakwater, section 2

Natural Gas Port

Service Boat Port

Liquid Bulk Port

SATTAHIP COMMERCIAL PORT

MAP TA PHUT INDUSTRIAL PORT PHASE III

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Dual-Track Rail & Motorway

Dual-track rail (Chachoengsao, Klong Sip Kao, Kaeng Khoi), currently under construction, will complete the dual-track routes in EEC

It will be operational partly in October 2017, and fully in February 2019

Upgrading the dual-track links among Laem Chabang, Sattahip and Map Ta Phut Ports is planned

• The Pattaya-Map Ta Phut Motorway (32 KM) will complete the motorway routes in the EEC and reduce congestion

• Budget: 17.8 billion baht

CHACHOENGSAO

RAYONG

CHONBURI

HUA MARK CHACHOENGSAO JUNCTION

SRIRACHA JUNCTION

LAEM CHABANG PORT

KAO CHI CHAN JUNCTION

MAP TA PHUT PORT

SATTAHIP COMMERCIAL PORT

CHACHOENGSAO- KLONG SIP KAO-KAENG KHOI DUAL-TRACK RAIL (under construction)

MAP TA PHUT SATTAHIP PORT

PATTAYA – MAP TA PHUT MOTORWAY (construction: 24%, complete in 2019)

Existing dual-track rail Dual-track rail (under construction) Existing single-track rail

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• The integration of high-speed train and the airport link is designed to connect Donmueng-Suvarnnabhumi and U-Tapao airports

• Responsible agency: State Railway of Thailand

High-Speed Train

CHACHOENGSAO

CHONBURI

RAYONG

CHACHOENGSAO STATION

DONMUANG INTERNATIONAL AIRPORT

SUVARNABHUMI INTERNATIONAL

AIRPORT

U-TAPAO INTERNATIONAL

AIRPORT

CHONBURI STATION

SRIRACHA STATION

PATTAYA STATION

U-TAPAO STATION MAP TA PHUT

STATION

RAYONG STATION

As a net-cost PPP project, it may have difficulties finding investors. The SRT also lacks PPP experiences.

CHALLENGES:

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Scheme Boi

(Sector based) Boi+

(Technology based) Boi++

(Strategic investment) Incentives for EEC

Supporting Laws

BOI Announcement (2014)

BOI Announcement (Mar 2017)

Competitiveness Enhancement Act (Feb 2017)

BOI Announcement (Mar 2017) and Draft Royal Decree (expected in Q2, 2017)

Sector All sectors identified in BOI Act

Technology and innovation development sectors

New industry/ New or advanced technology sectors (more details to come)

10 S-Curve industries, and EEC supporting sectors

Area Chonburi, Rayong, Chachoengsao

CIT Concession

Standard: max 8 yrs Merit based: +(1-3 yrs) or (50%x5 yrs)

Standard: 10 yrs Merit based: +(1-3 yrs)

Standard: max 15 yrs Standard: BOI or BOI+ or BOI++ Merit based: +(50%x5 yrs) (Must apply by 29 Dec 2017)

Others Grant from Competitiveness Enhancement Fund

PIT fixed at 17% rate -Have “world class” skills -Never work in Thailand before -Work in BOI-promoted companies in 10

S-Curve industries

• Investment in EEC gets super-generous tax incentives

Financial Incentives

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Comparison of CIT Rates in ASEAN

30

25 24

20 20 17.9

13.9

10.2 9.9 7.6

0

5

10

15

20

25

30

35

Philippines Indonesia Malaysia Vietnam Thailand

Legal rate Possible minimum rateCIT rates in ASEAN

Perc

ent

• Thailand’s CIT is already among the lowest in ASEAN

Source: Athiphat Muthitachroen (2017)

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Non-Financial Benefits

Land lease for 50+49 yrs

Holding foreign currency account

Approval or License

Professional licenses

• Investment in EEC also gets unprecedented non-tax benefits

EXISTING REGIME

Hire of Immovable Property for Commerce and Industry Act B.E. 2542

Allowed for land lease over 100 Rai

DRAFT EEZ BILL

Allowed to trade using foreign currencies

Responsible government agencies Secretary-General can approve or give licenses.

May be permitted to practice if getting license from foreign countries designated

by the EEZ Policy Committee

Must get license from professional organizations

Other regulations, such as EIA, FDA, etc.

Related laws EIA report approved within 1 year/ the

EEZ Policy Committee may propose to the Cabinet for law amendment and update

Foreigners may be allowed if the EEZ Policy Committee proposes to the

Cabinet for consideration.

Operation of foreign business Foreign Business Act B.E. 2542:

foreigners cannot operate most services

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Comparison of Land Lease in ASEAN

• Thailand’s land lease period is already among the longest in ASEAN.

COUNTRIES LEASEHOLD PERIOD

(Years) RENEWAL OPTION

(Years)

Malaysia 99 n.a.

Singapore 99 n.a.

Cambodia 99 n.a.

Vietnam 70 n.a.

Brunei 25-99 case by case basis

Thailand 50 49

Philippines 50 25

Myanmar 50 10+10

Laos 50 case by case basis

Indonesia 25-30 20

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S-curves Investment Nature of Investment Reasons

Next-generation automotive

Assembly of hybrid cars, not BEVs, are likely to happen, creating opportunities for supporting industries

Frontier products will be produced in developed countries or large markets such as China

Smart electronics Only firms with existing production facilities are likely to expand investment

Only additional tax incentive to locate in EEC is PIT reduction.

Affluent & wellness tourism

More investment in tourism and related business is likely to happen

Expanded U-Tapao airport will facilitate tourism

Agriculture & Biotech

Only firms with existing production facilities are likely to expand investment

Only additional tax incentive to locate in EEC is PIT reduction.

Food for the future Only firms with existing production facilities are likely to expand investment

• Many firms have already invested in Food Innopolis

• Only additional tax incentive to locate in EEC is PIT reduction.

Impacts on S-Curve Industries • Most investment in EEC will come from expanding the existing S-Curve industries

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S-curves Investment Nature of Investment Reasons

Industrial robotics

Very limited investment is expected

There is too small domestic demand for industrial robotics investment. However, some Thai companies may invest in automation system integration.

Biofuels and Biochemicals

Limited investment is expected

Thailand has limited capacity to develop advanced biofuel. Bioplastic is not cost competitive w/o subsidy.

Integrated healthcare

Limited investment is expected

The EEC Act will give full power to unlock the law obstacles. Actual exercise depends on political will.

Digital business

Very limited investment is expected

There is little rationale to locate in EEC except for those requiring super-fast internet connection.

Aviation and logistics

Possible investment from big players, including Airbus

Demand is real due to location advantage. The expansion of U-Tapao airport will also support the industry.

• Among the New S-Curve industries, significant investment can be expected only in the aviation maintenance, repair and overhaul (MRO) and the logistics sectors

Impacts on S-Curve Industries

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Resource Challenges

Water shortages • Water shortages will become a challenge,

especially during dry seasons • Government agencies will invest in water

infrastructure but limited surface water will be a bottleneck

Skilled labor shortages

• Shortage of skilled manpower will hinder the development of high-tech industries

• Difficult to attract “world-class” universities from western countries

• Work-permit regime must be liberalized • PIT reduction scheme will be hard to

implement

• Limited water volume in reservoir caps the growth of industrial water production

Source: East Water

593 537 556

509

325 333 355 344

0

100

200

300

400

500

600

700

2013 2014 2015 2016

Mill

ion

cubi

c m

etre

Water in East Water (EEC) Water volume in reservoir Water sold of EastWaterreservoirs by EastWater

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Conclusions and Recommendations (1)

• The EEC is a strategy to implement the Thailand 4.0 vision in a right direction after the failure of previous schemes.

• Infrastructure development • U-Tapao airport, dual-track railways and motor ways are likely to be developed as planned.

However, the development of high-speed rail, new cities and world-class universities are unlikely to materialize in the near term

• The government should only invest in infrastructure projects with high benefits and low negative impacts on the environment.

• Investment facilitation • The EEC will unlock existing regulatory obstacles and integrate fragmented public service

delivery.

• The lessons learned from regulatory reform and integrated public service delivery in the EEC should be applied nationwide.

22

Conclusions and Recommendations (2)

• Super-generous incentives to attract investment in targeted industries • Tax incentives would induce additional investment in targeted industries. However, it is very

costly and has limited effectiveness.

• Most new investment will be in the sectors that Thailand has comparative advantage

• Existing industries: tourism, automotive and auto-parts, and healthcare services.

• New industries: aviation MRO, logistics, and automation.

• Effective investment attraction of high tech companies requires

• holistic programs, including research support, skill development & regulatory reform.

• universities & research institutes to engage in R&D activities with investors.

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• Schemes to support Singapore as a hub of pharmaceutical and biotechnology businesses

• Provide research funding to companies for partnership with public research institutes and clinical-research units in hospitals.

• Define regulatory frameworks to facilitate the development of innovative therapies, while ensuring global standards of safety, quality and efficacy

• Establish research institutes and research consortia in key fields

• Build up key infrastructure for translational and clinical research such as units to support early-phase trials in public hospitals and Singapore Clinical Research Institute to support later-stage trials.

• Recruit and nurture world-class researchers and scientists

• Provide scholarship and training to create a talent pool to support the industry.

Holistic Investment Promotion: Singapore

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Conclusions and Recommendations (3) • The success of the EEC should be measured by the increase in

technological capabilities of the country and higher skill of Thai workers.

• Thailand should • Build technological linkages between business enterprises in the EEC and Thai business

• Develop human resources to support industries in the EEC

• Establish an industrial research institute in the EEC

• Use public procurement to build technological capabilities in smart cities and rail systems.

• The EEC should be a development model for Thailand 4.0 to succeed in • Creating technology

• Developing human resources

• Reforming regulations and public service

• Being friendly to the environment