ANALYSIS-Industrial spat creates investment risk for Thailand

MAP TA PHUT, Thailand, Oct 19 - A landmark court ruling suspending operations in major industrial zone has raised doubts about the ability of Thailand's shaky government to protect investors.

A Sept. 29 court order suspended $9 billion worth of operations in the rural town of Map Ta Phut, home to the world's eighth-biggest petrochemicals hub, over environmental and health issues. The ruling has stoked concerns about legal certainty and government effectiveness in a country once seen as a safe haven for big business.

Although an appeal has been lodged, allowing the 76 affected projects to resume operations temporarily, analysts say the credibility, and future, of Prime Minister Abhisit Vejjajiva's pro-business government is at stake if it fails to act fast.

"This is the government's big test, and if it fails to ensure these projects go ahead within a certain timeframe, investor confidence will be shattered," said Kongkiat Opaswongkarn, president of Thailand's securities analysts' association.

"This situation is messy," he said. "Right now, everyone is trying to attract foreign investment. Newcomers will look at other countries because Thailand has shot itself in the foot."

Thailand is climbing out of its first recession in 11 years and with an intractable political crisis showing no signs of abating, Abhisit's fragile coalition has a lot to lose if the Map Ta Phut dispute it chose to ignore drags on.

Prior to the court ruling, Citigroup had forecast the kingdom would receive $7 billion of foreign direct investment next year, far more than rival economies in Southeast Asia, such as Indonesia, Vietnam and Malaysia, some of which are offering incentives to lure foreign businesses.

HEALTH IMPACT ASSESSMENTS

Foreign inflows as a percentage of market capitalisation in Thailand's bourse are at 1.1 percent, according to Kim Eng Research, more than double that of Indonesia and the Philippines. A protracted court case could change that.

The dispute at Map Ta Phut, a sprawling petrochemicals hub covering 16.5 sq km (4,086 acres) of Thailand's eastern seaboard, is over the failure of companies there to carry out environmental impact assessments (EIA) and health impact assessments (HIA).

The projects, which include Germany's Bayer, India's Aditya Birla Chemicals, Australia's BlueScope Steel Ltd, and 25 companies belonging to Thai energy giant PTT, have completed only the EIA, because HIA laws came into force in 2007, when most operations were already underway.

The government has come under attack for ignoring repeated warnings to set up an independent body to oversee the HIAs.

A local environment group, which started lobbying governments 13 years ago to clean up Map Ta Phut, says 2,000 local people have since died of cancer as a result of pollution from the plants, although doctors have not said industry is to blame.

Sutthi Atchasai, head of the Network of Eastern People, said his group was not targeting investors and urged the government to resolve the issue before environmentalists pursue legal action over some of the other 36 industrial zones in Thailand.

"We don't want companies to move elsewhere, we just want them to clean up," he told Reuters.

The court injunction appeared to have caught Abhisit off guard as he battles to revive the economy, Southeast Asia's second biggest, while fending off mass protests and attacks from political rivals and his own bickering six-party coalition.

Thailand's bourse tumbled last week as panicked investors offloaded assets over concerns about the health of King Bhumibol Adulyadej, a figure of unity in Thailand, illustrating investors' fears about future uncertainty.

DOWNGRADES OVER POLITICAL STRIFE

The protracted political strife has triggered downgrades in credit ratings for Thailand and analysts say a decline in investment would pile more pressure on the government in the deeply polarised country.

"Politics and the economy have distracted the government and it has underestimated the severity of this dispute," said Somjai Phagaphasvivat, a politics and economics lecturer at Thammasat University.

"Investors don't need this uncertainty and this will have repercussions."

Map Ta Phut has become one of the biggest tests of Oxford-educated Abhisit's effectiveness and while the companies involved are unlikely to move, potential investors might seek new pastures if they think his government is unable to protect them.

"This, combined with another bureaucratic misstep or excessive delay in resolving the issue, would hurt investor perceptions," said Roberto Herrera-Lim, a Eurasia Group analyst.

"A prolonged delay would create perceptions of both government incompetence and judicial unpredictability, which would hurt investors' views of the government and bureaucracy of effectively insulating Thai industries and business from political and policy instability."