NAMMON LERTCHITCHARAT

NAMMON LERTCHITCHARAT 47 Soi Nawamin 86 Kannayao Ramintra Bangkok Thailand 10230 Phone number: 080-586-6444 590193@egat.co.th Professional Summary Responsible Electrical Engineer level 6 proficient in negotiation power purchase agreement and electricity cross border trading between Thailand and neighboring countries. Passionate and motivated with a drive for excellence. Skills English Language Presentation Coordination Judgment and Decision Making Negotiation Engineering and Technology Experience Engineer level 6 Electricity Generating Authority of Thailand Nontaburi Bangkok Course Attend CEPSI 2014 as a speaker in topic of Policy and Process of Electricity Importing from Foreign Independent Power Project to Thailand : a Case Study in Laos PDR Attend CIGRE 2015 as a speaker in topic of Overview of Cross Border Trading between Thailand and Neighboring Countries Advanced writing and style editing in English at SASIN Institute Education Master of Science: Economics Mar 2012 Chulalongkorn University Bangkok, Thailand Bachelor of Science: Electrical Engineer Mar 2008 Chulalongkorn University Bangkok, Thailand High School: Math-Science Mar 2004 Bodindecha (Sing Singhaseni) School Bangkok, Thailand

DEVELOPMENT OF CROSS BORDER ELECTRICITY TRADE IN THAILAND Nammon Lertchitcharat, Electricity Generating Authority of Thailand, 0805866444, nammon.l@egat.co.th Nitus Voraphonpiput, Electricity Generating Authority of Thailand, 024362850, nitus.v@egat.co.th Abstract Nowadays Southeast Asia region has higher demand in electricity. This issue raises concerns related to energy resource and security of supply while resources within Southeast Asia region are diversified in each country. Therefore the cross border trade plays an important role to enhance security of supply, reduce cost of electricity and serve demand of electricity in each country. Thailand, represented by the government of Thailand, as the potential and experienced country in trading electricity with neighboring countries, has cooperation with the government of Lao PDR, Myanmar, Cambodia and China. The government of Thailand and neighboring countries started their cross border trading cooperation by setting framework in the agreement executed by the representative of each country. This agreement is called government-to-government Memorandum of Understanding (MoU). And after that Power Purchase Agreement (PPA) will be negotiate by Electricity Generating Authority of Thailand (EGAT), the utility of Thailand. In the event that two countries decide to make cooperation for cross border trading, they have to enter into an agreement to be as framework called Memorandum of Understanding (MoU). This MoU specify amount of energy allowed to trade between two countries and the effective period for such cooperation. Besides MoU contains terms and conditions for such cooperation that the two countries and the Power Purchase Agreement has to follow. By collecting information from documents and experts, details in MoU will be shared. History of MoU execution between Thailand and neighboring countries (Lao PDR, Myanmar, Cambodia and China) along with amount of energy allowed to trade, effective period and terms and conditions specified in MoU will be stated in this paper. Besides, this paper will provide the information of the existing projects and potential projects under each MoU under the Power Development Plan (PDP) 2010-2030 (PDP2010: Revision 3). But cross border trading under MoU with some countries still has some difficulties that obstruct the investment, so barriers and recommendations related to this issue and successful rate of power project under each MoU will be discussed in this paper. The cooperation between the government of Thailand and the government of neighboring countries will benefit each country in the form of economic benefit from purchasing and selling electricity and security of supply. Moreover, this cooperation will enhance a good relation between both countries. Key Word FOREIGN INDEPENDENT POWER PRODUCER, CROSS BORDER TRADING IN ASEAN, MEMORANDUM OF UNDERSTANDING, ELECTRICITY MARKET

1.Introduction Nowadays Southeast Asia region has higher demand in electricity. This raises concerns related to energy resource and security of supply. Energy security means adequate, affordable and reliable supplies of energy. While resources within Southeast Asia region are diversified in each country, the cross border trade plays an important role to enhance security of supply, reduce cost of electricity and serve demand of electricity in each country. Thailand with limited resource concerns this problem as well. Electricity demand in Thailand growing approximately 7 percent annually and becoming more dependent on gas imported from neighboring country. To relieve the problem, Government of Thailand has cooperated with the government of neighboring countries such as Lao PDR, Myanmar, Cambodia and China. The cross border trading cooperation was started by setting framework in the agreement executed by the representative of each country. This agreement is called government-to-government Memorandum of Understanding (MoU) which firstly executed in 1993. In order to achieve the cooperation, Government of Thailand assigned the task to the relevant authority. Electricity Generating Authority of Thailand (EGAT), the utility of Thailand, plays the important role in negotiation for the agreement of Tariff MoU and Power Purchase Agreement (PPA) and as the buyer of the cross border project. This paper will show you the details of each MoU between Thailand and neighboring countries along with the projects under each MoU. The conclusion process of negotiation MoU and PPA will be provided. In addition, the analysis and discussion about the cross border trading between Thailand and neighboring countries are included. 2. Memorandum of Understanding A memorandum of understanding or MoU is a bilateral or multilateral agreement between two or more parties. It expresses the same understanding or agreement between these parties whether in formal or informal form. For the investment in electricity cross border trading, government of Thailand supports the investor looking for the resource in the neighboring countries such as Lao People s Democratic Republic (Laos PDR), the People s Republic of China (China), Union of Myanmar (Myanmar) and Cambodia by creating the MoU stated the cooperation each country has to provide. The details of each MoU are described as follows: 2.2.1 MOU Thai-Lao PDR Cooperation between Thailand and Laos PDR occurred from the agreement of the Lower Meking Subcommittee to develop the first hydro power project on Nam Ngum river. The project is successfully constructed and operated in 1970. Later, Laos PDR request for the cooperation from Thai side to deliver the electricity to sell to the province at the boundary of Laos PDR (Suwannaket and Thakek) and Thailand agreed to deliver and started the operation in 1973. Two decades later, the first MoU between Government of Thailand and Government of Laos PDR were executed in 4 June 1993. In the government-to-government MoU, both parties has obligation to support and cooperate to develop the power project within Laos PDR through the Sub-committee on Electric Power Cooperation between Thailand and Neighboring Countries or S-ECTN (authority from Thailand) and Coordinating Committee for Development of Electric Power or CDEP (authority from Lao PDR). Government of Lao PDR has to support the financial institute, the investor and the operator from Thai side to invest in power project in Lao PDR as appropriate. In the end, the long term agreement (called Power Purchase Agreement or PPA) will be entered into by EGAT and the investor to set the terms and conditions for the sell and the operation of the project. The first MoU (MoU1993), the framework is to develop the potential power project in Lao PDR for approximately 1,500 Megawatts by the year 2000. There are two projects successfully developed which is Theun Hinboun with capacity of 220 Megawatts operated since 1998 and Houay Ho project with capacity of 126 Megawatts operated since 1999. In 18 December 1996, the government-to-government MoU was extended to support the development of power projects in Lao PDR for approximately 3,000 Megawatts (including the existing capacity of the first MoU of 1,500 Megawatts) by the year 2006. The other two projects successfully developed are Nam Thuen 2 and Nam Ngum 2 in 2010 and 2011 with capacity of 948 Megawatts and 597 Megawatts respectively. From the

accumulated capacity of success projects of 1,891 Megawatts and the potential projects in Lao PDR, another extension of MoU is required. The second extension of MoU (MoU2006) was executed in 19 June 2006 to develop the power projects up to 5,000 Megawatts (including the existing capacity of the first MoU of 3,000 Megawatts) by the year 2015. Under MoU 2006 (second extension), there is no project successfully developed. Only one year after the execution of MoU2006, the third extension of MoU was signed in 22 December 2007 for the capacity of 7,000 Megawatts (including the existing capacity of the first MoU of 5,000 Megawatts). The extension of the capacity 2,000 Megawatts after the year 2015 has no expiration period. Six projects are successfully developed: Theun-hinbound Expansion Project, Hongsa Project, Xe-pian Xe-namnoy project, Xayaburi project and Nam Ngiep 1 project. Nam Theun 1 project is under negotiation process for PPA, and Pakbeng project is under the negotiation process for Tariff MoU. The accumulated of the capacity of the existing projects are 5,947 Megawatts which nearly reaches the ceiling of the MoU2007 (7,000 Megawatts) and these leads to the negotiation of MoU fourth extension for MoU2016. The MoU 2016 extends the limited capacity to 10,000 Megawatts until the year 2030 and, in addition, this MoU introduces the platform for the grid-to-grid system. Besides the existing project mentioned above, Xekong thermal project with capacity of 990 MW was proposed to the S-ECTN by Lao PDR in April 2016. Figure 1 Comparison of capacity specified in MoU and existing power project between Thailand and Lao PDR 2.2.2 MOU Thai-Myanmar Myanmar acknowledges the increasing needs of electrical power in Thailand and desires to cooperate in its fulfillment by developing power projects in Myanmar to utilize its indigenous energy resources, particularly hydropower and natural gas. The first MoU between Thailand and Myanmar was signed in 4 July 1997. Thailand agreed to purchase of electricity up to 1,500 Megawatts by the year 2010. After the expiration in 2010, two countries have entered into the second MoU in 15 June 2015 with no specific amount of limited capacity stated. This MoU remains in effect for a period of 5 years and will be automatically terminated in 2020 unless any party notified the intention to renew in advance. Under the MoU, each country has to designate their respective competent authority to jointly determine details of the power project. The developer will be selected by the Government of Myanmar. Thereafter, the power purchase agreement will be negotiated between EGAT and the developer. In facilitating the implement of power purchase, EGAT will incorporate to include such project into power development plan of Thailand. Until now, there is no project successfully developed between Thailand and Myanmar. The potential project under development is Mai Ton hydropower project with the capacity of 7,000 Megawatts which is under the feasibility study in Myanmar.

2.2.2 MOU Thai-China From the increasing demands of electricity power in Thailand and the desire of the People s Republic of China ( China ) to develop power projects to utilize indigenous energy resources especially hydro for sale to Thailand, the cooperation between two countries started in 12 November 1998 in order to encourage the purchase of electricity up to 3,000 Megawatts by the year 2017. The content under MoU between Thailand and China is the same as in the MoU between Thailand and Myanmar as mentioned above. There is one project under the development between EGAT and China Southern Grid Company Limited (CSG). This project will provide energy from the power project in China through the transmission system in Lao PDR to sell to Thailand. The joint working group and joint technical working group were settled to enhance the cooperation among countries. 2.2.4 MOU Thai-Cambodia Under the wish of Thailand to promote power trade and to provide training and technical assistance to Cambodia and under the desire of Cambodia to develop its power projects with indigenous energy resources, both countries entered into MoU in 3 February 2000 with no limited trading capacity and no expiry date. The government of Cambodian agrees to cooperate with Thai party to implement the policy to sell electricity in Cambodia. Two countries agree to cooperate in planning and construction of the interconnection of its transmission systems to set up an open access policy for future trade with other countries. There are three potential projects under Government-to-Government MoU with Cambodia. First one is Koh Kong project with capacity of 2,000 Megawatts. Koh Kong project is under MoU negotiation process with EGAT since June 2016. The second project is Koh Kong Utility project with capacity of 2,660 Megawatts. The name of the developer was submitted to S-ECTN in May 2016. The last project is Stung Mnam with capacity of 94 Megawatts. This project is under process of submission developer s name by Cambodia to S-ECTN. In the summary, Thailand has Government-to-Government MoU with 4 countries that is Lao PDR, Myanmar, China and Cambodia as listed below in figure 2. Figure 2 Summary of All Existing Government-to-Government MoU Though there are only successful power projects for cross border trade situated in Lao PDR, the related authority of Thailand has diligently cooperated with other countries in order to support the cross border trade with other countries too. The details of related authorities will be described in the next paragraph. 3. Relating Authorities relating to the cross border trade in Thailand 3.1 S-ECTN (the Sub-committee on Electric Power Cooperation between Thailand and Neighboring Countries) Under the cooperation between Thailand and Lao PDR under the first and second MoU, Committee on Energy Policy Administration had decided to set up the committee to enhance the partnership in cross border trade. S-ECTN or the Sub-committee on Electric Power Cooperation between Thailand and Neighboring Countries was then established in 13 August 2003 by the authority of Committee on Energy Policy

Administration. S-ECTN has the core duty to make power development plan according to the power purchase policy and demand in Thailand by supporting EGAT to purchase energy from such neighboring countries under the Government-to-Government MoU and to consider the appropriate purchasing price along with terms and conditions in the agreement. Moreover, S-ECTN has to cooperate with the neighboring countries in planning and construction the interconnection transmission system and in delivering to and from the third country. For the technical aspect, S-ECTN has to support by training or providing the technical knowledge with such neighboring countries as may be required. S-ECTN has to support Thailand investor and financial institution to be a part of the project in the neighboring countries also. S-ECTN has authority to appoint the working group to help its work as necessary. This committee consists of the representative from the relating authorities of Thailand as follows: 1. Representative from the Office of the Permanent Secretary, Ministry of Energy 2. Representative from the Energy Policy and Planning Office 3. Representative from the International Energy Cooperation Office 4. Representative from the Department of International Economic Affairs 5. Representative from the Office of the National Economics and Social Development Board 6. Representative from the Department of Alternative Energy Development and Efficiency 7. Representative from the Attorney General Office 8. Representative from the Electricity Generating Authority of Thailand (EGAT) and 9. Representative from the Provincial Electricity Authority (PEA) 3.2 EGAT (Electricity Generating Authority of Thailand) Established in 1 May 1969, EGAT is the state enterprise under control of Ministry of Energy responsible for electric power generation and transmission and cross border trade. EGAT was authorized to cooperate for the cross border trade both by purchasing energy from the Foreign Power Purchase Project under Government-to-Government MoU and by exchanging energy under the cooperation between each government. For the Foreign Power Purchase Project, the government of the neighboring countries will propose the feasible project to S-ECTN of Thailand and S-ECTN will consider and assign EGAT to negotiate Tariff MoU as shown in figure 3 [1]. Figure 3 Process of the Tariff MoU Execution

After the execution of the Tariff MoU, EGAT and the investor will negotiate terms and conditions of the agreement called Power Purchase Agreement or PPA. PPA will be executed after pass for the approval of all relevant authorities of Thailand. The process of Tariff MoU and Power Purchase Agreement execution is as shown in figure 4 [1] below. Figure 4 Process of the Power Purchase Agreement Execution 4. Key Issues and recommendations to the Cross Border From the good cooperation between countries, there still have some barriers and limitations behind the cross border trading that blocks the development of the power projects as described below: 1. Financial issues: Since most of power projects are financial projects, the bankable business model is required for both the investor and the lender. The barrier in the field of financial is as follows: Risk in Income: Lenders require fixed or committed income so that the investor can pay the debt back to the lenders consistently. This risk can occur if the off taker as the buyer does not buy enough energy from the project. Moreover, the factor that affects income is electricity price and foreign exchange rate which may vary. Recommendation: The investor needs to make an agreement with commitment structure. The off taker commits to buy the specified amount of energy as in the agreement while the producer guarantee the quality of energy delivered. The energy price should be fixed to cover the cost of operation, debt repayment and return on equity of the project. The currency of energy payment should match with the currency of the debt payment in order to mitigate the risk from the foreign exchange. It is important that the funds should be able to transfer to the offshore account of the lenders also. Risk in cost: The risk can occurred from many factors. The fuel price for the power project may vary and affect the cost. Even if the hydropower project, the lack of water may affected the project as well. The operation cost and liquidated damages is one of the factors which the investor has to concern. If the project machine has problem, not only the lack of income but also the higher operation cost occurred. Recommendation: the long term agreement with the provider and the contractor is required. For the fuel price, the investor should enter into the long term agreement with the provider to fix the fuel price or in the estimated price that can be acceptable. The other solution for the risk of fuel price is hedging. For the operation of the power plant, the investor may create the agreement with the contractor to operate and maintenance with the fixed cost and the liquidated damages will be the responsible of such contractor.

2. Technical issues: For the technical aspect, the stability of the system is the most important issue. The cross border trade requires the connection between two systems of the two countries that have different stability level. The weak system may cause the trouble to the stronger system. Recommendation: the technical support is required to enhance the performance of the operation of the system. The voltage stability, the transient stability and the dynamic stability should be concerned. By the way, different countries have different approached to handle the security issues of the system, two countries must be cooperate in this. Moreover, the investor has to concern the limitation each country can purchase from other countries which may vary. In Thailand, for example, the limitation of purchasing power from other countries is limited to 13% of installed capacity for purchasing from one country, 25% from two countries, 33% from three countries and 38% for four countries as shown in figure 5(a). This limitation can be presented in the pattern of ratio between purchasing power from other countries and installed capacity in Thailand as shown in figure 5(b). Figure 5(a): Percentage of limited external purchase of Thailand Figure 5(b): Comparison between limited external purchase and installed capacity in Thailand 3. Political and Legal issues: Legal risk is the risk which the investment's returns may suffer as a result of change in government, legislative bodies and policy. The change-in-law which may relate to the change of the approval and licenses process or the expropriation, is one of the main barriers since the investor has to follows the laws and legislation in the country where the project is situated. Another barrier is the legal process when the dispute occurred. Recommendations: The political risk can be resolve by the undertaking issued by the Government or by the authority on the behalf of such country to guarantee that the project invested by the foreign investors will not be affected by the change or the instability of the country. Another way to resolve this problem is the political risk insurance. One thing that the investor has to concern when taking the option of the insurance is the additional cost to the project.

Conclusion The development of the cross border trading needs cooperation between countries. Government-togovernment MoU was created to set the framework for such cooperation. The investor has to negotiate the Tariff MoU with the off taker, EGAT. The Tariff MoU sets out the energy price and tentative terms and conditions to follow. However, the success of the projects depends on three key issues. Firstly, financial issue, the investor should concern the factors affected income and cost of the project to sustain the return in the satisfaction level. Secondly, technical issue, the investor should study the risk of voltage stability, transient stability and dynamic stability to ensure the security and reliability of the system. The cooperation between two countries related to the technical standards is important. There is the limitation of the external purchase in Thailand which limits the purchase from one, two, three and four country(s) at 13%, 25%, 33% and 38% of Thailand installed capacity respectively. Finally, political and legal issue, the investor should negotiate with host country to reduce the risk. The successful of the project demands the support especially from the host country. Reference 1. Policy and Process of Electricity Importing from Foreign Independent Power Project to Thailand : a Case Study in Lao PDR, Nammon Lertchitcharat, CEPSI 2014 2. Development International Power Markets in East Asia, Note No. 143, The World Bank Group 3. Key Project Agreements and Structures Required to Ensure a Bankable Power Project in Tanzania, Peter Kasanda, February 2014 4. Security Issues of Power System Interconnection, Mo-Shing Chen, Emeritus Professor of Electrical Engineering, University of Texas