Kra Canal gets off to a shaky start

(The Bangkok Post, 24 January 2003)

Phuket Pass Project Co was almost disqualified from the contest to dig the Kra Canal last year but rebounded again last week when it was quietly awarded the project to conduct a feasibility study on the undertaking. The controversial manner in which the little known Hong Kong-based company secured the contract is an inauspicious start to this latest attempt to revive the on-again, off-again dream to dig a canal across the Kra isthmus.

The fact four other companies - Kra Canal Management and Transport Thailand, Chanoknart International, Wang Kanai Construction, and Siam River Kwae Forest - were unable to bid for the project raises serious questions about the transparency of the whole deal.

Gen. Chavalit Yongchaiyudh, as chairman of the National Committee on the Full Feasibility Study of the Kra Canal Project, argued that the selected company had made him an offer he could not refuse by pledging $50 million for the project with no strings attached. Other firms could join the study, he said, if they could come up with a similar financing scheme. Neither statement is true.

Once a firm has been awarded a contract, it enjoys an unmatched advantage over any competitors. The winning firm can use this fact to raise money from investors while rivals will find it tough finding takers and so will be unable to come up with a similar pledge.

Also, no one gives away two billion baht without conditions. The contract signed with Phuket Pass Project contains provisions that constitute a significant departure from an earlier draft adopted by the committee. Chief among these are that: there are no legal mechanisms to check the sources of the company's finances, where previously established law firms were required to look into this and ensure the fund was clean and above board; the company will control how the fund is used by having its representatives sit on the Klong Thai Foundation, set up to manage the fund, where none would have been allowed earlier; a final amount of $25 million will no longer be given to the committee in a lump sum but will be paid for related feasibility studies on a case by case basis; and there are no punitive clauses should the company fail to meet its financial obligations.

Sure, there are no free lunches in life and Phuket Pass Project could rightly expect something in return for its huge "money for nothing" pledge. In this case it may be securing conditions that will ensure it wins the much larger contract to build the canal expected to cost up to $25 billion, or a trillion baht. That is all the more reason to have conditions to check the finances of the company and to retain control over the funds in the hands of the committee. In discarding these controls, the company could guide the direction and outcome of the studies to favour its own ends. And who is to say this will not be to the detriment of the public interest?

Phuket Pass Project may very well offer the best deal, but the manner in which Gen Chavalit has gone about choosing it _ selection rather than calling for bids _ can only raise doubts that will work against the realisation of his pet project.

Gen Chavalit and the other parties pursuing this project are well advised to pay heed to public opinion. The Thai-Malaysian gas pipeline is much smaller in scale yet its fate remains uncertain as a result of strong public opposition. The Kra Canal will have a much broader socio-economic and environmental effect on the South, and Gen Chavalit and friends must bear in mind the importance of public perception of everything they do. Failing to factor this in will ensure another terrible fiasco will befall the country.

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