Thailand - Minburi Industrial Estate Project

FILE COPy Report No. 1530-TH Thailand: Appraisal of the Minburi (Lat Krabang) Industrial Estate Proiect September 16, 1977 Industrial Projects Department FOR OFFICIAL USE ONLY Document of the World Bank This doc ument has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise he disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1 = Bht 20.0 Bht I - US$0.05 Bht 1 million = US$50,000 WEIGHTS AND MEASURES I rai = 1,600 sq. m. it = 0.16 ha - = 17,204 sq. ft. " = 0.395 acres 1 ha = 6.2 rai 1 acre = 2.5 rai ABBREVIATIONS BOI - Board of Investment EPZ - Export Processing Zone IEAT - Industrial Estate Authority of Thailand MEA - Metropolitan Electricity Authority NESDB - National Economic and Social Development Board NHA - National Housing Authority TOT Telephone Organization of Thailand Fiscal Year (Thailand) - October 1 to September 30  FOR OMCAL US ONLY THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ... ..... .. ............ ......... . 1-ii I* INTRODUCTION I....................................... .. 1 II. THE THAI SETTING ...................................... 1 A* General I......................................... 1 B. The Industrial Sector - Structure, Performance and Growth Prospects .2........................ . 2 C. Government Policy and Investment Incentives ...... 3 D. Foreign Investment .... ....... ............. .. * 4 E. Programs for Regional Development and Industrial Estates ........ ............................... 4 ,III. MARKET ..*................................. .............. 5 A. Comparative Advantages of the Greater Bangkok Area 5 B. Demand for Industrial Land -- Greater Bangkok Area ..9.9eeees................................. 6 C. Availability of Industrial Land - Greater Bangkok Area ............... 0............... ...................... 6 D. Prospects for the Lat Krabang Industrial Estate .. 7 E. Industries Expected on the Lat Krabang Industrial Estate * ...e..*.............................. 8 IV. INDUSTRIAL ESTATE AUTHORITY OF THAILAND (IEAT) ........ 8 V. THE PROJECT ........................................... 10 A. Project Scope .. .................................. 10 B. Detailed Features ...... ......................... 11 1. Site Location, Characteristics and Acquisition 11 2. Site Development ................................... ..0... 11 3. Building Construction ........... o ............. 13 4. Export Processing Zone (EPZ) ...... 13 5. Engineering/Architectural Services and Technical Assistance ..... o...... ............. 14 6. Project Management ............................ 14 7. Land Use Pattern ...* ........... 15 C. Project Execution Schedule ........................ 15 This report was prepared by C. Goderez, E. Siou and J. Kuroda of the Industrial Projects Department. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -.2 - Page No. VI. COST ESTIMATES AND FINANCIAL ARRANGEMENTS .... ......... 16 A. Project Cost * ** ** ** *** **........................................ . 16 B. Financing Plan ................................... 17 C. Procurement, Use of Bank Loan and Rate of Disbursement .*...*. ... . .................... a * ..... 17 VII. FINANCIAL ANALYSIS ............... ..................... 18 A* Revenue ......................................... 18 B. Income and Cash Flow Forecasts ................... 22 C. Balance Sheets and Audit ......... a.........a.... 23 D. Financial Return ....... ...... e.. o.. ....o...... ... 23 E. Risk Analysis ....... ...... ....... . . . . ......... . 24 VIII. ECONOMIC AND SOCIAL BENEFITS ................... o....... 24 A. Economic Rate of Return .....oo.oo..* ......... 24 B. Acceleration of Industrial Investment 24 C. Incremental Investment, Output and Employment .. 25 D. Internal and External Economies ................. 25 E. Social Benefits ... o.. ....... 25 F. Development of Indigenous Entrepreneurship ...... 26 IX. AGREEMENTS ..o..o....o ...... .. .. .... . ..... ....26 ANNEXES 1. Employment Estimates - 1976 2. Principal Merchandise Exports 3. Trade Indices and Terms of Trade 4. Number of Registered Factories by Industry Group and Location - 1975 5. Gross Domestic Product Originating from Manufacturing at Current Market Price, 1971-1976 6. Registered Manufacturing Firms by Location - 1975 7. Exports by Industrial Categories, 1965-1975 8. Production and Capacity of Selected Manufacturing Industries 9. Statistics of Promoted Investment, 1960-1976 10. Investment Policies and Incentives 11. Registered Capital of Promoted Industries by Nationality and Type of Ownership - 1960-1976 12. List of Business Activities annexed to the Alien Business Act 13. Regional Development Plans 14. Development Plan for the Greater Bangkok Area  -3- ANNEXES (Continued) 15. National Industrial Estates Program 16. Projected Growth of Industry and Land Requirements - 1972-1981 17. Industrial Land Availability - Greater Bangkok Area 18. Price Comparison with Nava Nakorn Industrial Estate Project 19. National Executive Council Announcement No. 339, December 13, 1972 20. Industrial Estate Authority of Thailand - Organization, Management and Operations 21. Bang Chan Estate 22. Project Description 23. Project Execution Schedule 24. Project Cost Estimate 25. Projected Average Quarterly Disbursements of IBRD Loan 26. Revenue Projections 27. Operating Cost Estimate - 1983 28. Income Projections 29. Cash Flow Projections 30. Pro Forma Balance Sheets 31. Financial Rate of Return 32. Economic Rate of Return MAP3 IBRD - 11324R Thailand - Industrial Estate Program IBRD - 17963 Lat Krabang Industrial Estate and Export Processing Zone   THAILAND APPRAISAL OF THE LAT KRABANG INDUSTRIAL ESTATE PROJECT SUMMARY AND CONCLUSIONS i. This report analyzes a project to establish an industrial estate at Lat Krabang, 35 kms east of Bangkok, on 1,007 rai (162 ha) of former rice paddy land at an estimated cost of Bht 198 million (US$9.9 million). When completed in 1980, the project will provide fully serviced industrial sites for some 120 medium-scale factories employing up to 12,000 workers and stan- dard factory buildings suitable for subdividing and rental to between 20 and 30 small and medium-scale industries. ii. Industry in Thailand has grown rapidly in the 1960s and '70s, acting as the leading economic sector during most of that period. An equal or better performance is needed in the future to complement the labor absorp- tive capacity of the agricultural sector which is approaching saturation. Thailand has a large and varied natural resource base. Its products are competitive on the international market and export earnings have increased more rapidly than import costs, despite Thailand's dependence on imported oil for the major share of its energy requirements. Since 1972, manufacturing investment has shifted emphasis from import substitution to export and this trend is expected to continue. Although manufacturing growth and investment during the 1977-1980 period may decline from the peak rates experienced in 1973/74, it is expected to be comparable to the sustained high levels of the 1960s. Therein lies one of the basic justifications for the project at this time. Industrial estates are needed to respond effectively and economically to the anticipated demand for factory sites and services; at the same time, by facilitating a more rapid and less costly factory planning and construction cycle, industrial investment is further stimulated. iii. The majority of new factories will continue to gravitate to the greater Bangkok area as in the past and the project analyzed in this report, as well as others to be initiated over the near-term, is designed to attract industry away from the congested center of Bangkok to outlying sites zoned and prepared for industrial use. In a later phase of the long-term national industrial estate development plan, sites and services for industry will be established in the Northern, Northeastern and Southern regions of Thailand to help disperse industry more evenly throughout the nation. iv. Thailand's first industrial estate was established in the late 1960s at Bang Chan, under the management of the Department of Industrial Works, Ministry of Industry. Based in part on the Bank's recommendations as well as on the experience accumulating at this first estate, the creation of an autonomous business-oriented Government agency to develop and manage a planned national program became the first goal in the early 1970's. In October 1973, the Industrial Estate Authority of Thailand (IEAT) inaugurated  - ii - operations under a decree of the National Executive Council. After prelimi- nary studies, Minburi was selected as the highest priority location for Thailend's second Government-sponsored industrial estate and, with UNIDO technical assistance, a feasibility study was completed in August 1974 and appraised by the Bank in late 1974. However, IEAT experienced difficulties in acqulring the proposed site and another plot, located at Lat Krabang, some 15 km south of Minburi was acquired in late 1976. This reappraisal confirms the essential soundness of the project at the new location. V. -ihe project consists of the acquis'ilion of land and its development imnr sutStable industrial sites by the construction of dikes to control flood- ing, and the provision of power, water, telephones, sewage treatment and other facilities. About 12% of the area will be allocated to an Export Processing Zone (EMZ to test the demand for such facilities by national and interna- tional firms producing entirely or primarily for the export market. Stan- dard factory buildings will be constructed for sub-division and rental to SDall- and medium-scale industries. Technical assistance will be provided to strengthen IEAT's management, planning and project execution capabilities not only for this project but also for the long-range national program of industrial estate and EPZ development. vi. Financing required for the project amounts to US$9.9 million equiv- alent (Bht 198 million) and consists of: (i) equity of Bht 103 million (US$5.2 million) to be provided partly by a national treasury commitment of izh 77.,4 million (US$3.9 million) and partly through internal cash generation 0, Mt 25.7 million (US$1.3 million) from the sale of estate land; and (ii) lon$-term debt of US$4.75 million equivalent from the Bank. The Bank loan, corr esio:nding to 48% of total project investment, would be made directly to !EAT for 20 years including 5 years grace at 7.9% interest and would finance lanzd development, standard factory buildings and technical assistance. Direct and indirect foreign exchange (FE) costs are estimated at approximately 46% o3f project cost, or US$4.6 million, so that the Bank loan would cover 100% of the FE component plus $150.000 equivalent of LC costs. viio Based on the planned construction schedule, the estimated prices