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Under Suspicion in Thailand


In February, Thai Prime Minister Thaksin Shinawatra made an unexplained one-day visit to India. When he came back, Thaksin refused to say why he went, citing national security as a reason for keeping mum. A month later, the Indian government renewed contracts to lease transponders on a satellite operated by Shin Satellite PLC (ShinSat), a company controlled by the Thaksin clan--and suddenly the Prime Minister was on the defensive.

Both the government and ShinSat executives deny any connection between Thaksin's trip and the $11 million contract. But opposition politicians smell something fishy. Says Abhisit Vejjajiva, deputy leader of the opposition Democratic Party: "This is just one of many instances where there are suspicions [of a] conflict of interest."

Like his European counterpart, Italian Prime Minister Silvio Berlusconi, Thaksin is learning the hard way that the transition from tycoon to politician can be bumpy. Thaksin's family holdings, known as the Shin group of companies, make up the biggest corporate entity in Thailand. Now that he is calling the shots from the Prime Minister's office, Thaksin is vulnerable to accusations that he is using his job to advance his family's interests. "From a foreigner's perspective, this would be like having Bill Gates at the head of the Justice Dept. in the U.S." says a Bangkok analyst, who requested anonymity for fear of suffering a political backlash.

As a result, Thaksin is spending much of his time deflecting charges of impropriety rather than hewing to his campaign promises to revitalize the economy, spur rural development, and privatize state enterprises. Moreover, Thaksin, who narrowly escaped ouster last August after failing to disclose his total assets (estimated worth: $1.2 billion), has hurt his own credibility by lashing out at enemies, real or perceived, and muzzling the press.

Nowhere is Thaksin more politically vulnerable to conflict-of-interest charges than in telecom, a sector he entered in 1990 with Advanced Info Service (AIS), which today has 65% of the cellular-phone market. The Prime Minister says he is all for liberalizing Thailand's overregulated telecommunications industry. But he is holding back, say analysts, since going ahead would open him to allegations that the real purpose of the reforms is to help the Shin group.

One go-slow government project is the privatization of two state companies that own Thailand's fixed-line phone networks, Telephone Organization of Thailand (TOT) and Communications Authority of Thailand. However, this requires renegotiating a deal under which private operators pay one-fifth of their earnings to the government--basically as fees for the right to operate phone concessions. One of these private operators happens to be AIS, which is still controlled by the Thaksin family.

The Thaksin administration proposes to end these payments in 2006, 11 years earlier than originally intended. Theoretically, once the private operators don't have to pay a fee to the government, they can pass the savings on to consumers in the form of lower phone rates. The lower cost of operating would also make it easier for new companies to enter the sector, and more competition is good for rates. But the public perception is that the policy switch mostly benefits telecoms, especially AIS, which stands to reap a total savings of $2.5 billion, says Somkiat Tangkitvanich, director of research at Thai Development Research Institute, a think tank.

Thaksin is equally open to criticism if he does nothing. Preserving the status quo would prevent new companies from entering the industry, hence protecting incumbents such as AIS. "No matter how you look at it," says Amarit Sukhavanij, telecom analyst with Merrill Lynch & Co. in Hong Kong, "Thaksin stands to gain." Analysts suggest that Thaksin should simply ignore public opinion and push through the legislation. After all, his government has more than a two-thirds majority and need not call an election for three years.

Thaksin also has come under fire for his handling of a controversy between AIS' chief competitor, DTAC, and the government. DTAC has taken Telephone Organization of Thailand to court because it has to pay a monthly fixed-line access fee of $4.70 per subscriber to the government agency, while AIS does not. In fact, AIS does not have to pay because because its arrangement was inked with a different government agency several years ago. But DTAC's lawyers argue that under a 2001 telecom law--whose aim is to provide a level playing field--DTAC should be exempt. The government says the status quo should prevail until an independent telecom authority is established--a process bogged down in intense politicking. After DTAC stopped paying the fee, TOT Chairman Supachai Pisitvanich, a Thaksin appointee, suggested that DTAC subscribers switch providers, a move that would clearly benefit AIS.

DTAC executives declined to comment for fear of repercussions. "None of their executives would risk making such politically sensitive comments," says a source close to the company. "They're not fighting just another phone company, but one that's part of somebody's business empire--which is backed by consenting state machinery." In a written statement, a government spokesman denied any wrongdoing and said: "The Prime Minister always emphasizes morals and ethics in his work."

While operations at Thaksin family businesses are not suffering from all the controversy, the whiff of impropriety seems to be hurting the share price of two of the group's listed companies, AIS and parent Shin Corp. AIS expects 2001's $91 million profit to grow 20% this year. Shin Corp.'s profit quadrupled in 2001, to $44 million. Yet both companies' stocks have underperformed the Thai Stock Exchange index by more than 10% this year. To be sure, a handset price war and the recent entry into the market of TA Orange has helped push down the share price, but analysts have no doubt that the Thaksin effect is partly responsible. This is striking in a region where investors have long bid up share prices of powerfully connected companies. Analysts say investors are now more likely to reward transparency. "Everybody is watching them like a hawk," Merrill Lynch's Amarit says of Shin Corp. and AIS.

Meanwhile, exectives at the Shin group are doing their best to put a positive spin on the dubious developments. Shin Corp. Chief Executive Boonklee Plangsiri insists that Thaksin's India trip "had nothing to do" with ShinSat. "I don't think there are any pros or cons from Dr. Thaksin being Prime Minister," Boonklee adds. "Investors trust us." That may be true, but as Richard Jones, ShinSat's head of investor relations, notes, "the less overlap there is from the political side, the better for us." Given Thaksin's position, overlap seems all but inevitable. By Frederik Balfour in Bangkok


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