Tales from a notorious swamp

13 June 2005

Khunying Jaruvarn has said almost every procurement contract for the new airport is problematic. For fifty years, the tales emerging from this swamp have been about authoritarian rule and funny deals.

Almost half a century ago, American advisers suggested the Thai government should have a new commercial airport. The military dictator Sarit Thanarat decided it should be located in Nong Ngu Hao, Cobra Swamp. Nobody seems to know why Sarit made this choice. There was no study of the site's suitability, no consideration of alternatives. The choice set off a minor orgy of land speculation.

One company, Italthai Holdings, was given the contract to build the airport. There was no competitive bidding. The same company would research, design, and manage the construction. Critics thought this was a licence to print money. The controversy became so heated that when Sarit died in 1963, the project immediately fell apart.

But great ideas don't die easily. Sarit's successors kept trying to kickstart it, and finally succeeded in 1968. Again they selected a company without competitive bidding, the US aviation giant, Northrop. Again they commissioned the company both to design and construct the airport, and threw in a concession to operate it for twenty years as well. Again Italthai (renamed as Italian-Thai) popped up as Northrop's local partner.

Again too controversy surged. The press argued it was a ramp. Parliament rejected the project three times. The deal was finalised only after the military strongmen abolished parliament and went back to dictatorial rule in 1971.

And again, it fell apart when dictatorial rule was brought down by the student revolt of 1973. The successor government walked away from the deal. For good measure, Northrop's banker was accused of improperly financing Nixon's presidential re-election campaign, and Northrop had to pull out of the deal.

But when military rule returned in the late 1970s, so too did the airport in Cobra Swamp. By 1984 there was a master plan. But there was also an oil crisis and a big budget deficit, so the project was put on ice.

When generals returned to power by coup in 1991, the project finally took off. But times had changed. The generals could no longer pick a site and a company at will. The process now involved four main parties, each of which was wreathed in controversy.

First, control of the project was relocated to an independent authority. This idea was conceived in 1991-2, and finally evolved into the New Bangkok International Airport company (NBIA) in 1995-6. Although this put some distance between the project and the politicians, it was not much of a gap. There was a battle royal between the airforce and the civilian ministers of Anand Panyarachun's government over who would appoint and control the authority's members. From then on, almost every change of Cabinet (and even some reshuffles) were promptly followed by a total revision of the key positions.

Second, design work was allocated to strings of consultant companies. How they wrote the specs was often critical in determining which companies would get the resulting contracts. Although the basic design was made in the early 1990s, each successive government found reasons to adjust the project so that a new set of consultants could be appointed, and a new set of specs written. Under Chuan I, the project was reimagined as a hub for the Southeast Asian region. Under Chuan II, grandiose plans were scaled back because of the economic crisis. Under Thaksin, the project was reconceived as bigger than ever.

Third, construction and supply contracts were now allocated by competitive bidding, but often this process was cleverly managed. A ring of major contractors was suspected of sharing out contracts; they formed a queue; predetermined who would win; and compensated one another through subcontracts. But sometimes this could go wrong.

One big contract for landfill was won by Italian-Thai. Thirteen other companies complained they had been disqualified from the bidding because of the way the specs had been written. The associations of architects and engineers estimated the padding in the 11.6 billion baht price was a cool 3.5 billion. The aggrieved companies petitioned the Ministry of Communications, the Counter Corruption Commission, and the Council of State.

Eventually the Council of State ruled that the bidding had been improper. But Italthai kept the contract, which by that time was far advanced. Only the scale and cost were renegotiated in the downsizing dictated by the economic crisis.

Fourth, financiers also had influence. The major battle over the last decade has been about the design and construction of the passenger terminal, for which one major financier was the Japan Bank for International Cooperation (JBIC). At one bidding round, the five consortiums with no Japanese member all withdrew, leaving the four with a Japanese member to fight it out.

But this was a mere skirmish. The struggle over the terminal building was a major war in which all four elements of this new era were in play. By a tortuous process, two designs were made, and each was backed by its own coalition of politicians, executives in NBIA, consultant companies, contractors, and financiers. The battle raged back and forth for years amid a blizzard of corruption charge and counter-charge. Eventually, the contract went to ITO, a consortium in which the major partner is Italian-Thai. This decision was promptly challenged on grounds that the specs had been biassed, the process had skipped several important steps, the scrutiny was inadequate, and Italian-Thai should be disqualified because it was in the bankruptcy court. Most of all, the contract seemed full of loopholes, including provisions to reduce the scope of work without reducing the cost.

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