Grayling Blog

Court Ruling puts Thailand industrial development plans back on track

Posted on 4.09.2010 by Justin Barnett

You could almost hear an audible sigh of relief from the international business community following the September 2 decision of The Central Administrative Court to withdraw an earlier injunction suspending most of 65 projects worth a combined investment of up to THB 400 billion (USD) in Rayong Province – a key region for Thailand’s industrial development.

Not all of the 65 projects were released from the injunction by the court ruling. Two licences granted to TOC Glycol of PTT Chemical and Thai Plastics and Chemicals of the Thai conglomerate Siam Cement Group would be revoked, however the Court ruled that the remaining 63 projects caught up in the injunction could proceed.

Last year, the Court issued the injunction in response to a lawsuit brought by NGOs and villagers alleging the projects failed to comply with Thailand’s Consitution, as licences had been granted to projects without public hearings on environmental and health assessments. At the time many of the projects were well underway and investor confidence plummeted.

At the heart of the villagers complaint was the accusation that government agencies and their officers had been negligent in granting the licences.

For the government of Prime Minister Abhisit Vejjajiva, the ruling was an embarrassment, as well as a political and economic headache it simply did not need. A four- party committee was set up to resolve the differences between villagers and the large scale industrial schemes, but progress looked to be painfully slow until the Natural Resources and Environment Ministry issued a list of 11 “harmful” industries that would be subject to stringent requirements. Based on this list most of the suspended projects in Rayong were let off the hook with the Court ruling, While the Court cleared the agencies of violating the law, they were reprimanded as negligent in carrying out their duties. NGO’s have said they intend to appeal the ruling.

The market response was immediate.. Thailand’s Stock Exchange charged towards the sky with capital inflows and higher investor confidence lifting it to a record high market capitalisation of Bt7.52 trillion for the first time in its 35-year history. The Government quickly announced plans for a roadshow to Japan to begin on Sep 14 to seek to soothe investor confidence and explain the greater clarity surrounding rules for investment in heavy industry in Thailand. The focus on Japan is self evident. Not only does the Japanese business community represent the biggest foreign investment Group in Thailand, its trademark investment practice is to invest in long term projects which generate employment and export revenues for the Thai economy.

With the export sector the major driver of the Thai economy, currently accounting for around 60% of GDP, there’s reason for everyone, except perhaps some nearby villagers, to breathe a little easier.

The long term future for heavy industry investment in Thailand will now be clearer. Some industries will simply seek opportunities elsewhere in the region. And regardless of the outcome of any appeal in the Court, the NGOs and villagers have set an historic stake in the ground that potentially harmful impacts on nearby communities can now be challenged through a due process of appeal. Few serious investors will ignore the need to mitigate any adverse impacts on local communities when contemplating future large developments.