This chapter presents the economic and political context in Thailand, and provides an overview of Thailand’s SOE sector. It then offers an analysis of the legal and regulatory framework for SOE governance, including details on the ownership framework, and how the State Enterprise Policy Office and line ministries exercise ownership rights. Finally, this chapter describes prospective reforms in the Thai SOE sector.
OECD Review of the Corporate Governance of State‑Owned Enterprises in Thailand
Abstract
1.1.1. Economy
Thailand has made notable economic progress over the last four decades, having transitioned from a low-income into a middle-income country and becoming a development success story on account of sustained economic growth and poverty reduction. It has successfully shifted its economy from reliance on agriculture to export-oriented manufacturing, while simultaneously integrating into regional value chains such as in the automobiles and electronics sectors (OECD, 2023[1]). In 2024, Thailand also became an OECD accession candidate which will support Thailand’s ambitious reform agenda to become a high-income country by 2037.
Thailand acceded to the Association of Southeast Asian Nations (ASEAN) in 1967 and the World Trade Organisation in 1995. With the Regional Comprehensive Economic Partnership (RCEP) having come into force in 2022 and the recent launch of negotiations for a free trade agreement (FTA) with the European Union, Thailand is expected to integrate further into global supply chains (European Commission, 2023[2]).
Thailand’s economy grew at an average rate of 7.5% between 1960 and 1996, and – following the Asian Financial Crisis of 1997-1998 – at a rate of 5% between 1999 and 2005. However, a series of political shocks including a coup in 2006 and subsequent political unrest, the global financial crisis of 2008-2009, and massive flooding in 2011, contributed to economic slowdown, dampened investor confidence and fallen domestic demand (World Bank, 2023[3]).
In the last decade, Thailand’s economic growth has faced further obstacles due to a new series of exogenous shocks, as evidenced by the average growth in total factor productivity (TFP) stagnating from 3.6% per annum during the early 2000s to 1.3% during 2009-2017. The first significant contributor to this slowdown has been the decline of private investment from over 40% in 1997 to 16.9% of GDP in 2019 (World Bank, 2023[3]).
More recently, the COVID-19 pandemic has exacerbated existing economic challenges, causing the economy to contract by an estimated 6.1% in 2020. Those living in rural areas were particularly affected: according to World Bank estimates, in 2020 the poverty rate was over 3% higher in rural areas than in urban zones, with the rural poor outnumbering the urban poor by almost 2.3 million. Poverty rates in the South and Northeast parts of the country also remain at a rate almost double that of the national poverty level, largely due to high concentration of rural areas and subsequent dependence on agriculture for households in these regions. (World Bank, 2023[3]).
Source: OECD compilation based on data from the World Bank; OECD (2023[1]). OECD Economic Surveys: Thailand 2023, https://doi.org/10.1787/4815cb4b-en.
The economy is projected to grow by 3.2% in 2025, with private consumption and tourism industry remaining the main accelerators of growth (OECD, 2023[1]). Strong post-pandemic economic recovery momentum, particularly from the tourism industry, and short-term catalysts such as the general election, are also expected to make a positive impact (World Bank, 2023[4])
Source: OECD compilation based on data from the World Bank.
Nevertheless, a prolonged period of high energy prices has highlighted the vulnerability of certain sectors particularly manufacturing and services. The phasing out of COVID-19 relief measures and the rising cost of living may hamper efforts to reduce poverty. Specifically, as COVID-19 relief measures and stimulus packages which helped support the income of poor families are discontinued, the poverty rate is projected to persistently remain at 6% or above. Weaker-than-expected global growth, political uncertainty within Thailand and broader structural challenges to the Thai economy including an aging population, climate pressures, declining export competitiveness and high household debt also pose risks to economic growth (World Bank, 2023[4]).
1.1.2. Government
Thailand’s government is a unitary system which consists of the executive, legislative, and judiciary branches. It emerged after the Revolution of 1932 brought an end to the absolute monarchy, replacing it with a constitutional monarchy. Today, Thailand is a parliamentary democracy where the administration of the country is carried out by the prime minister, who is elected by an open vote by members of the House of Representatives and the Senate. The parliament is composed of 500 legislators in the lower house and 200 selected senators in the upper house.1
Under the 2017 Constitution, the prime minister of Thailand is elected during a four-year period by a combined vote of both houses, meaning that the candidate must receive at least 376 votes, a system which largely favours pro-establishment candidates who can count on the support of the 250 senators2.
During the parliamentary elections of May 2023, the opposition parties Move Forward and Pheu Thai won by a significant margin over the incumbent and conservative United Nations Thai Nation Party. After multiple attempts by two political parties to build a coalition government in opposition to the incumbents, the Pheu Thai Party successfully nominated the 30th prime minister of Thailand and the new Cabinet was announced in Royal Gazette on 1st September 2023.
1.1.3. Legal system
Thailand’s civil legal system is laid out in its Constitution, which is the supreme law of the State and has the highest legal effect. Since transitioning from an absolute monarchy to a constitutional monarchy in 1932, Thailand has had 20 charters of constitutions, an average of one roughly every four years. Its present Constitution was drafted by the National Council for Peace and Order (NCPO), adopted by 61.4% of Thai voters in a public referendum in 2016, and ratified in 2017.
Thailand’s legal system is a statutory law system, primarily based on written law passed by the legislature. The decisions of the Thai Supreme Court have precedential value and are often used as secondary authoritative sources of the law. Judges in Thailand perform their duties in the name of the head of state and are legally required to be independent when adjudicating cases according to the law.
Furthermore, Thailand’s laws and regulations are rarely repealed, which increases the stock of laws and regulations as they are introduced. Because of this, many laws and regulations are outdated, creating obstacles for the business environment. The government has attempted to address this problem by launching a “Regulatory Guillotine” and “Simple and Smart Licence” programme in 2017, which aims at revising or repealing outdated legal acts (OECD, 2020[5]).
1.1.4. Business environment
Thailand ranks 25th out of the 64 economies surveyed and 7th in the Asia-Pacific region, according to the 2023 IMD World Competitiveness Ranking (Figure 1.2). Thailand also ranked 108th out of 180 economies on Transparency International’s 2023 Corruption Perceptions Index. Thailand’s performance on the World Bank’s Control of Corruption indicator has been stagnating in recent years and was at -0.5 in 2021, below regional peers such as Indonesia, Viet Nam, the People’s Republic of China (hereafter ‘China’), Korea, Japan and Singapore (World Bank, 2023[6]).
These scores reflect that while Thailand’s authorities made significant efforts to improve the business environment over the last years, challenges remain. As noted above, Thailand has introduced reforms that aim at simplifying starting a business: for instance, in 2016, the government introduced reforms that made business registration simpler by creating a single window for registering payments and started to provide credit scores for banks and financial institutions (World Bank, 2017[7]). Section 77 of the 2017 Constitution also requires the use of good regulatory practices, including Regulatory Impact Assessments and stakeholder consultations. Good regulatory practices are also enshrined in the Thai National Strategy (2018-2037), Twelfth National Economic and Social Development Plan, and the “Thailand 4.0” strategy (OECD, 2020[5])
Government agencies such as the Ministry of Industry and the Board of Investment have also increased efforts to improve ethics and transparency requirements for public officials. In January 2023 the Thai government pledged a no-gift policy, issuing strict guidelines on accepting gifts by public officials and their families (OECD, 2023[1]).
Efforts to improve the business environment relate to Thailand’s intention to further integrate into regional and global value chains, including in the ASEAN region, and to advance towards its goal of becoming a high-income country, in line with its National Strategy.
Source: IMD (2023), Global Competitiveness Ranking, 2023
1.1.5. Capital markets
Amongst ASEAN economies, Thailand shows the highest use of market-based financing at 120% of its GDP. In 2023, listed companies in Thailand accounted for 97% of its GDP. Companies in Thailand ranked second in total initial public offering (IPOs) and secondary public offering (SPOs) raised between 2000-2023 amongst ASEAN peers (OECD, 2024[8]).
Thailand is also the second-largest capital market in the region following Indonesia, representing 23% of ASEAN’s total market capitalisation. It also accounts for 32.62% on the MSCI Emerging Market ASEAN Index, surpassing Malaysia and Philippines and trailing slightly behind Indonesia. (MSCI EM ASEAN Index, 2023[9]). In terms of industry composition, consumer non-cyclicals, industrials, and energy companies dominate IPO proceeds in Thailand. Additionally, consumer cyclicals, industrials, and basic materials also raise a significant share of SPO proceeds (OECD, 2024[8]).
Public sector3 ownership in listed equity is significant in Thailand, representing 16% of the total listed equity and exceeding the global average of 11.6%. Companies in which the public sector holds at least 25% of the listed equity account for 23% of the total market capitalisation (OECD, 2024[8]).
Source: OECD Capital Markets dataset, LSEG, April 2024 World Economic Outlook Dataset, OECD (2024[8]), Mobilising Capital Markets for Sustainable Growth, https://doi.org/10.1787/196b5bde-en .
The Stock Exchange of Thailand (SET) is the sole stock exchange in Thailand and the second largest stock exchange in ASEAN after Indonesia by market capitalisation, at USD 495 billion as of the end of 2023 (OECD, 2024[8]). Initially established as a limited partnership in 1962, SET was incorporated under the Securities Exchange of Thailand Act, B.E. 2517 (1974), to be the centre for the trading of listed securities, and officially started trading in 1975. It currently operates under the legal framework of the Securities and Exchange Act, B.E. 2535 (1992), and its core operations include the listing of securities, the supervision of information disclosure by listed companies, securities trading and surveillance, monitoring of member companies involved in security trading, and dissemination of information and promotion of education amongst investors.
The number of listed companies in Thailand is significant by regional standards, but it trails behind Malaysia, Indonesia and Viet Nam (Figure 1.4). While many stock exchanges operating in advanced economies were privatised over time, SET is still state-owned.
Source: OECD (2024[8]), Mobilising ASEAN Capital Markets for Sustainable Growth, https://doi.org/10.1787/196b5bde-en.
Thailand has also increased the use of corporate bonds over time, following global and regional trends. Corporate issuances more than doubled in the 2016-2023 period compared to the 2008-2015 period, driven primarily by non-financial companies. During the 2016-2023 period, Thailand was the largest corporate bond market in the ASEAN region (OECD, 2023[10]).
1.2.1. Number and type of state-owned enterprises
Despite several reform initiatives in recent years, the number of centrally-held SOEs in Thailand has only slightly decreased from 55 in 2005 to 52 in 2023. Overall, the central government of Thailand holds full or majority ownership in 52 SOEs including 3 listed companies. It holds minority stakes of between 10% and 49% in 6 listed companies as of end 2023 (see Table 1.4).
There is only one notable example of a local government-owned enterprise: Krungthep Thanakom Co., Ltd., which is overwhelmingly owned (99.98%) by Bangkok Metropolitan Administration. Krungthep Thanakom Co., Ltd. is responsible for developing mass rail and water transportation systems, as well as various environmental projects, including community waste management initiatives. This Review focuses on SOEs that are fully or majority owned by the central government.
Legal forms of SOEs
State-owned enterprises in Thailand take two functional forms: statutory corporations and incorporated SOEs according to ordinary corporate law. Specifically, they take the following legal forms (see also Figure 1.5):
1. Limited liability companies (LLCs)
2. Public LLCs, whose shares may be sold to the general public
3. Autonomous administrations established by specific law
4. SOE established by Decree issued under the Act on Establishment of Government Organisations, B.E. 2496 (1953)
5. SOE established by Cabinet resolution.
It is notable that 52% of centrally-held SOEs are categorised as autonomous agencies established by specific legislation or statute, implying that they possess a certain degree of administrative independence from the government. The second most common type of SOE, representing 19%, are those established by Decree issued under the Act on the Establishment of Government Organisations, B.E. 2496 (1953). They are often entrusted with public functions and operate under the supervision of the relevant government authorities as separate legal entities.
Only 8% of SOEs are structured as public limited liability companies, established under the Public Limited Companies Act B.E. 2535 (1992), which allows them to offer shares for public sale. Of these SOEs, three are listed on the Stock Exchange of Thailand (SET). SOEs incorporated as (public) limited liability companies (LLCs) are governed by corporate laws under the Civil and Commercial Code and are regulated by the Ministry of Commerce.
The list of SOEs under the oversight of the SEPO of the Ministry of Finance is provided in Table 1.2. In addition, around 300 subsidiaries categorised as SOEs under the Budgetary Procedures Act B.E. 2561 (2018) are also regulated by the same legislation. It is important to note that SEPO’s criteria for establishing joint ventures and supervising subsidiaries within SOE corporate groups require the parent SOE to report information about its subsidiary companies to SEPO (SEPO, 2023[11]). Therefore, in principle, SEPO has the authority to supervise state-owned subsidiary companies indirectly.
Source: OECD calculations based on data provided by SEPO.
Source: Data provided by the SEPO
Definition of an SOE
Presently, Thailand lacks a precise definition for 'state-owned enterprise' and the definition of state-owned enterprises in Thailand varies depending on the applicable laws (see Table 1.3), including for statutory corporations.
Some enterprises are considered SOEs under certain laws and regulations, but not under others, which creates the potential for legal loopholes that can be exploited by SOEs. For instance, with more than 50% of state ownership, PTT Exploration and Production Public Company Limited (PTTEP) is considered an SOE under the Budgetary Procedures Act B.E. 2561 (2018), but not under Article 4(3) of the Standard Qualifications of State Enterprise Directors and Officials Act B.E. 2518 (1975), which defines SOEs as enterprises in which the state holds two-thirds of the capital. This discrepancy also applies to SOE subsidiaries.
SOEs’ subsidiaries, as well as the subsidiaries of their subsidiaries two levels down, are included in the definition of SOEs under the Budget Act, but not under the State Enterprise Labour Relations Act, which defines SOEs as only those enterprises where the combined equity share held by the Ministry of Finance and other SOEs exceed 50%.
As such, SOEs’ subsidiaries are not subject to the same regulations governing personnel recruitment and termination, potentially allowing some SOEs to take advantage of this legal loophole by setting up a subsidiary to handle its human resource management. Recruitment and termination of employee under SOE subsidiaries comply with internal rules and regulations of each subsidiary. Critically, subsidiaries that fall under the definition of SOEs as per the Standard Qualifications of State Enterprise Directors and Officials Act B.E. 2518 (1975) and the State Enterprise Labour Relations Act are required to comply with these acts.
However, due to varying definitions of what constitutes an SOE, some employees at SOE subsidiaries might not be covered by the protections offered under the State Enterprise Labour Relations Act, particularly if they are employed through a subsidiary that does not fall under the legal definition of an SOE. At the moment, the assessment team has not been made aware of plans to unify the definition of SOEs.
Source: Information provided by the SEPO
1.2.2. Size and sectoral distribution of the SOE sector
State-owned enterprises (SOEs) play a crucial role in the Thai economy. According to the latest data provided by SEPO, by the end of 2023, the 52 wholly-owned and majority-owned SOEs employed 307 579 people, with total assets amounting to USD 448.17 billion. The total revenue of these SOEs amounted to USD 161.34 billion, equivalent to 32.71% of the GDP. These enterprises are involved in various important industries including energy, transportation, and utilities, which are vital for national infrastructure and economic resilience. Figure 1.6 provides an overview of the sectors in which individual SOEs in Thailand are found and their market size by employment and value of revenue.
SOEs in the energy sector are especially economically significant. Four SOEs within this sector account for 41% of all SOE revenue and are among the four largest SOEs in Thailand by revenue: PTT Public Co., Ltd. (PTT), Electricity Generating Authority of Thailand (EGAT), Provincial Electricity Authority (PEA), and Metropolitan Electricity Authority (MEA). In contrast, the transportation sector, despite having a larger number of SOEs, accounts for only 8% of the revenue within the overall SOE sector.
Market dominance is a prominent characteristic of the energy sector, particularly in the natural gas and electricity industries. Since their establishment in 1981, SOEs have held a dominant position in the gas industry, making significant investments and entering into long-term contractual agreements. This poses challenges for new entrants attempting to compete (OECD, 2023[1]). An overview of the size and sectorial distribution of SOEs, based on latest available data, is provided in Table 1.4.
Note: Financial data as of end of 2023. The Value of Enterprises (USD mn) is 0.3% for Primary Sectors; 0.4% for Manufacturing; 2% for Telecoms; 2% for Other Utilities (including postal services); 1% for Real Estate and 0.7% for Other Activities. Source: OECD calculations based on data provided by SEPO
Note: Calculated based on the weighted average interbank exchange rate as of 19 July, 2024, which was 36.228 Baht per USD.
Source: Data provided by SEPO .
1.2.3. Listed SOEs
As of 2023, three SOEs in Thailand in which the state owns over 50% of shares are listed on the Stock Exchange of Thailand (SET): the PTT Public Co., Ltd (PTT), the Airports of Thailand Public Co., Ltd (AOT), and the Mass Communication Organisation of Thailand (MCOT) Public Co., Ltd. They were listed on the SET in 2001, 2003 and 2004 respectively. The partial privatisation scheme helped facilitate the mobilisation of private capital, while mandatory compliance to stock market rules governing disclosure, conflicts of interest and internal and external audits and controls helped increase transparency and accountability within these SOEs (TDRI, 2017[12]).
According to data provided by the Ministry of Finance of Thailand, as of 2023, listed SOEs with a consolidated government ownership of no less than 10% account for 11.12 % of the total market capitalisation in Thailand, and their sum value is USD 56,890 million. There are currently no plans for additional IPOs of SOEs.
Note: Data as of the end of fiscal year 2023. The number was calculated based on weighted average interbank exchange rate as of 19 July 2024, which was 36.228 Baht per USD. Thai Airways International Public CO., Ltd is under trading suspension as of August 2024.
Source: Information provided by SEPO.
Notably, some listed companies in which the state holds a minority share do not fall under Thailand’s central SOE portfolio despite the state exercising considerable control. This is particularly true for Thai Airways International Public Co., Ltd and MFC Asset Management Public Co., Ltd, each of which has state ownership between 40% and 50% (see Table 1.5).
All Thai SOEs are encouraged to follow the same rules as other listed companies, including the disclosure of information such as related party transactions. SET encourages listed companies to comply with Corporate Governance Code, however compliance with the code is still on a voluntary basis. According to findings from an OECD study, listing SOEs on the stock exchange can improve corporate governance standards, as the presence of outside shareholders can result in a disciplining effect through reinforcing board independence; increasing transparency and disclosure; and controlling the level of state influence in company operations (OECD, 2016[13]). In the case of Thailand, PTT has consistently performed better than other SOEs in terms of ranking by total assets and revenue.
1.2.4. Public-private partnership projects involving SOEs
Public-private partnership (PPP) projects hold importance in Thailand as the main vehicle to develop the nation’s public services and infrastructure. These are often formalised through state-owned enterprises.
According to the Public-Private Partnership Act B.E. 2562 (2019), PPPs are defined as public sector’s investment with the private sector in any form or allowing private sector investment by issuing permit, granting of concession or of any form of right, particularly in infrastructure and public service undertakings. The PPP Act defines a framework for private investments that focuses on promoting PPPs based on shared ownership between the government and private sector. This includes: (1) the establishment of the Public-Private Partnership Commission and the role of SEPO; (2) the requirement to approve a Public-Private Partnership Project Delivery Plan and the outcome of the selection of the private party; and (3) the establishment of a fund to promote these investments. SEPO is the central PPP coordinating body.
The undertakings related to infrastructure and public services as specified in Section 7 of the PPP Act are summarised in Table 1.6 and can cover any other undertaking as prescribed in the Royal Decree.
Source: The Notification of the Public-Private Partnership Commission with the approval of the Cabinet under Section 7 of the Public-Private Partnership Act B.E. 2562 (2019)
1.2.5. Overview of PPP projects under each SOE
The collaboration between the public and private sectors in investments began in the 1980s during the 6th National Economic and Social Development Plan B.E. 2530 – 2534 (1987 – 1991). The country’s economy has continuously developed, leading to the necessity of investing in infrastructure and expanding public services to meet the growing demands. Consequently, the government opened opportunities for private sector participation in state-run projects and operations. The Thai government has been increasingly engaging with the private sector in participating in PPP projects. In these partnerships where SOEs act as the project owners, there have been approximately 30 flagship projects that have been effective since the late 1980s, and 21 projects continue to the present day, as illustrated Table 1.7.
Note: TOT Public Company Limited (TOT) merged with CAT Telecom Public Company Limited (CAT) under the name “National Telecom Public Company Limited” or NT in 2021.
Some projects are PPP projects under other laws such as the Eastern Special Development Zone Act B.E. 2561 (2018).
Source: Data provided by SEPO.
According to the Public - Private Partnership Project Delivery Plan B.E. 2563 – 2570 (2020 – 2027), there are 127 projects with an estimated total value of over 1,166.8 billion baht (34.21 billion USD). According to the plan, a total of 10 SOEs are responsible for 76 projects. Among these, Airports of Thailand Public Co., Ltd. is accountable for the highest number, with a total of 26 projects.
Nevertheless, despite the long duration of PPP projects, which average 30 years, it is rare for the ownership of the project to be transferred to the private sector towards the end of the project period. Since many PPP projects are connected to the responsibilities or authorities of state agencies that have granted or delegated temporary privileges to the SOEs and/or private sector for operation, when the contract expires, it becomes the duty of the state agencies to carry on those operations for public and societal benefit.
Investing in infrastructure to enhance the country’s competitive capabilities requires substantial funds and, given the constraints on budget and public debt levels, such investments can significantly strain the state treasury. To address this issue, the establishment of the Thailand Future Fund (TFFIF), the fundraising source to support investments in infrastructure projects for state agencies, aims to reduce the financial burden on the government’s investments, enabling budget allocation and borrowing capacity to be directed towards other essential projects that contribute to the economy and society. Furthermore, the fund also creates opportunities for private investors and the public to invest in state assets.
TFFIF initially registered the initial assets of 1,000 million baht in 2016. TFFIF currently invests in the right to receive 45% of Expressway Authority of Thailand (EXAT)’s toll revenue from two expressways, namely Chalongrat and Buraphawithi expressways, for a period of 30 years. Furthermore, EXAT plans to utilize proceeds from any funds raised through TFFIF to develop EXAT’s greenfield projects, namely Rama 3 – Dao Khanong – Western Outer Ring Road Expressway and Third stage expressway system (N2 and East–- West. Corridor section). The fund has garnered significant interest from investors, resulting in successful fundraising. Specifically, all investment units were sold out in the first registration of the increased capital, which was raised from 4.47 billion to 45.7 billion baht. Currently, there continues to be active trading of the fund units in the Stock Exchange of Thailand.
Despite the successful fundraising through TFFIF so far, there has not been any further consideration or initiation of raising funds for investments in projects other than the two aforementioned projects of EXAT.
Source: Prospectus of TFFIF.
1.2.6. Operational performance of SOEs
According to the latest available data provided to the assessment team, the contribution of SOEs to Thailand's economy, in the form of revenues, accounted for around one-third of the country's 2023 Gross Domestic Product (GDP). The performance of Thai SOEs improved with the net profit margin and return on equity (ROE) increasing to 5.56% and 8.56% in 2021, respectively, up from 4.47% and 6.01% in 2020 (SEPO, State Enterprise Evaluation 2021[14]). Their profitability remained lower than it was prior to the pre-COVID-19 period (Figure 1.7).
The performance of each SOE varies significantly depending on the sector of operation. The energy sector stands out as the most profitable. PTT recorded a net profit margin of over 63% of the SOE’s net profit. The company is involved in the entire energy supply chain, from energy exploration (via its subsidiary, the PTTEP PLC), natural gas transmission, oil refineries, to gas distribution and petroleum stations. PTT also dominates with a 60% market share in the oil refinery, downstream gas distribution, and retail industries.
Indeed, SOEs that exhibit a strong ability to generate profits play a crucial role in contributing to the government’s revenue. This is due to the requirement for Thai SOEs to transfer a portion of their profits or other income to the Treasury as part of the government’s revenue (SOE’s remittances). Notably, based on the annual budget expenditure for Fiscal Year 2023, the SOE’s remittances amounted to 4,192 million USD, accounting for over 5.61% of the total national revenue.
Source: Based on latest available data provided by SEPO (State Enterprise Evaluation 2021[14]), State Enterprise Evaluation 2021.
Conversely, certain state-owned firms are undergoing persistent and substantial losses. An example is found in the transportation sector, where the State Railway of Thailand (SRT) and Bangkok Mass Transit Authority (BMTA)4 had to enter a rehabilitation plan. Their financial difficulties stem from historical operational burdens and inadequate revenues to cover expenses. High operational costs are not entirely covered by service charges, leading to prolonged losses due to insufficient income to meet expenses. Consequently, the transportation sector of SOEs carries the highest debt among non-financial SOEs, with a debt-to-equity ratio of up to 5.65, while SOEs in other sectors maintain debt-to-equity ratios ranging from 0 to 2.
In 2021, to support the continued operation of SOEs with public interest objectives, the government allocated budgetary expenditures of around 2.3 billion USD to subsidise approximately 22 SOEs, most of which were operating at a loss.5 This subsidy surpasses the remittances from SOEs, adding to the country’s fiscal burden and raising concerns about the fiscal strains caused by SOEs. Nevertheless, when examining trends from 2017 to 2020, it becomes apparent that the revenue transferred by SOEs tends to outweigh the budgetary support provided, with variances from year to year. In general, Thai SOEs generate more income for the government than the support they receive and remain vital to Thailand’s economy.
However, a significant challenge faced by Thai SOEs overall is that, despite annual increases in asset size, investments, and subsidies, their return on assets (ROA) remains low. The SOE sector displays operational inefficiencies, leading to reduced competitiveness compared to the private sector.
From 2017-2021, SOEs have exhibited lower profitability (Net Profit Margin) compared to non-state-owned companies (limited to those listed in The Stock Exchange of Thailand – SET Index). Before the COVID-19 pandemic, SOEs’ profitability ranged between 6-8%, but it decreased to approximately 4% in 2020. There was a slight recovery in 2021. However, when comparing with non-SOE companies, it becomes evident that non-SOEs have been better at recovering their profitability. From 2017 to 2019, non-SOEs had operational results ranging from 7-9%, which reduced to 5% in 2021 but managed to recover to pre-pandemic levels by the end of 2021.
Moreover, SOEs were more affected by the COVID-19 pandemic in terms of revenue. In 2020, their revenue declined by up to 20%, primarily due to lower tourism, international flights, and passenger transport. Meanwhile, SOEs must continue to operate under their usual services, which has a considerable influence on their earnings.
Source: OECD calculations based on information provided by SEPO; Stock Exchange of Thailand (2022[15]), https://www.set.or.th/th/about/setsource/news-release/article/27-thai-listed-companies-report-profit-in-2021.
1.2.7. Evolution of the SOE sector: historical perspective
Over the past 100 years, the SOE sector in Thailand has been marked by phases of expansion, reform, and adaptation. This section outlines the role of SOEs in the development process and the broadening of their ownership.
SOEs as a vehicle for development
SOEs in Thailand have traditionally been expected to achieve key economic and public policy objectives, such as developing infrastructure delivering public services and supplying employment. For this reason, the government considers raising the effectiveness, cost efficiency and accountability of SOEs as important to serve its broader development agenda.
The roots of Thailand’s SOE sector can be found in the early 20th century when the government began establishing entities to manage key sectors such as transportation, utilities, and natural resources. These SOEs played a crucial role in the country’s modernisation efforts, contributing to infrastructure development, energy production, and agricultural advancement. They also played a significant role in Thai economy due to their political relations and acted as both market regulators and market operators (ADB, 2020[16]).
The 1950s and 1960s witnessed a heightened emphasis on state-led development strategies. Thailand’s SOEs expanded in sectors including telecommunications, manufacturing, and finance, with the government aiming to drive industrialisation and achieve economic self-sufficiency. This phase was characterised by direct government ownership and control of a wide range of enterprises, reflecting the prevailing import-substitution industrialisation model. During this period, the Thai authorities focused on developing manufacturing and established a number of SOEs in this sector, particularly in textiles, paper, glass and sugar (David Robinson, 1991[17]).
However, SOEs in the manufacturing sector proved to be generally inefficient. The government therefore turned policy efforts towards industrialisation and attracting private investment and passed the Investment Promotion Act in 1960 and 1962. It also created the Board of Investment (BOI) to administer a package of investment incentives designed initially to promote import-substituting industries. During the 1960s industrial output grew rapidly, and substantial improvements in infrastructure, notably in irrigation, electricity supply and transportation, as well as the growth of the commercial banking system, were seen. Improvements in the road system allowed agricultural production in the provinces to be sent for export. Subsequently, in the early 1970s, the government made a shift in policies away from import substitution toward export promotion, and the growth of the manufacturing sector became increasingly export-oriented (David Robinson, 1991[17]).
Broadening the ownership of SOEs
The 1980s saw a paradigm shift with the implementation of market-oriented reforms and economic liberalisation as Thailand, along with many other countries, embarked on a journey of privatisation and deregulation. The privatisation of SOEs, especially in the finance, telecommunications, and energy sectors, aimed to enhance efficiency and stimulate investment. Subsequently, the late 1990s brought both progress and challenges to Thailand’s SOE sector.
The government stepped up its efforts to reform the SOE sector particularly after the Asian Financial Crisis in 1997, which obligated several SOEs in critical economic sectors, namely the telecommunications, energy, and airlines, to join the privatisation programs (ADB, 2020[16]). The Asian Financial Crisis prompted a reevaluation of the role of SOEs in the economy, as the government sought to adopt reform policies to deal with public debt. Thailand’s perspective on public services underwent a shift towards liberalism following the Crisis. Prior to this, numerous public-facing services, such as civil aviation, were regarded as public services, and it was the government’s responsibility to monopolise the provision of such services.
In 1998, the government of Thailand announced its Master Plans for Privatisation of SOEs which primarily included the divestment of public enterprises for private investments and transferring ownership from the public to the private sector (ADB, 2020[16]). The government then enacted the State Enterprises Corporatisation Act 2541 (1999), requiring various SOEs to join the privatisation program with a focus on telecommunications, energy, and airlines sectors. The Act also provided a framework for conversion of government agencies into incorporated SOEs.
In 1998, the government established the National Energy Policy Office (NEPO), a planning agency for energy liberalisation, NEPO proposed structural reforms to the oil and gas sector by unbundling gas transmission and distribution functions under the control of the Petroleum Authority of Thailand (now known as PTT).
Subsequently, citing the plan, the government removed the government-owned status of the PTT and contributed to the privatisation of PTT on the Thai stock exchanges via IPO (ADB, 2020[16]). The Airport Authority of Thailand, which became AOT Plc, and the Mass Communication Organisation of Thailand, which became MCOT Plc, were also partially privatised and listed on the stock market in 2003 and 2004 respectively (TDRI, 2017[12]). The flow of private capital helped expand these enterprises and introduced more stringent compliance with stock market rules governing disclosure. In the telecommunications sector, the government carried out liberalisation efforts by approving various mobile service providers to compete with the SOEs in the telecommunications market, leading to a reduction of the market power of SOEs, which became smaller market players in telecommunications (ADB, 2020[16]).
Furthermore, in 2013, the Private Investment in State Undertakings Act B.E. 2556 (2013) was created to regulate private investments in government agencies and SOEs. The Act also defines a framework for private investments, including: (1) the establishment of the Private Investment in State Undertakings Policy Committee; (2) the need to approve a Strategic Plan; and (3) the establishment of a fund promoting these investments.6
Following this, the Ministry of Finance undertook marginal reforms. In 2014, the government made efforts to consolidate management and control of SOEs by creating the committee known as the “SOE Superboard”, which consisted of the prime minister himself as chairman, the governor of the bank of Thailand, and several prominent bankers and financiers (TDRI, 2017[12]).
Following the recommendation of the commission, the government introduced a reform project, the draft Development on Governance and Management of State Enterprises bill, which was approved by SEPC in March 2015 and envisaged the establishment of a holding company, the National State Enterprise Corporation, for incorporated SOEs. However, the reform was successfully opposed by protectionist sentiments, labour unions and line ministries. As of 2023, only five SOEs have been privatised, partially privatised or corporatised: PTT, Telecom of Thailand (TOT), Airport of Thailand (AOT), Mass Communication Organisation of Thailand (MCOT) and Communications Authority of Thailand (CAT).
Source: OECD analysis based on information provided by SEPO authorities.
1.3.1. Main laws and regulations relevant to corporate governance
A number of laws, regulations, and policies collectively shape the corporate governance landscape in Thailand (see Table 1.9). Thailand’s Development of Supervision and Management of State Enterprises Act B.E. 2562 (2019) (“2019 SOE Act”) serves as the cornerstone of the legal framework for SOEs in Thailand. It primarily applies to SOEs that are categorised as autonomous agencies established under specific laws and regulations, operating with a degree of commercial independence but owned by the government. This law aims to enhance SOE efficiency by reforming their oversight structure, improving supervision and, management, and establishing an effective governance system to ensure high-quality operations aligned with their objectives.
To achieve these goals, the law establishes the State Enterprise Policy Committee (SEPC) and the necessary regulatory bodies. The law outlines the principles, objectives, and governance structure of SOEs, defining the rights, duties, and responsibilities of SOEs, their management, and the roles of government agencies in overseeing their performance. Additionally, the Act introduces mechanisms to support the efficient selection and operation of SOE boards of directors.
The SEPC, comprised of the Prime Minister, Deputy Prime Ministers, ex officio members, and qualified individuals appointed by the Cabinet, is tasked with setting goals, policies, and overall directions for the development of SOEs. The role of the SEPC is further explained in Section 1.4.2, Institutional Actors.
Article 33 of the 2019 SOE Act stipulates that the SEPC is required to announce guidelines for the good governance in SOEs. The guidelines must encompass the following elements: i) Business Management and Development Plan; ii) Risk Management and Internal Controls; iii) Accurate, Complete, and Transparent Information Disclosure; iv) Nomination and appointment of directors; v) Criteria for directors’ remuneration; vi) Governance policy for Private Limited Companies or Public Limited Companies; and vii) Implementation of the State Enterprise Development Plan and Missions of State Enterprises.
Following this directive, SEPO issued the Principles and Guidelines on Corporate Governance for State-Owned Enterprises B.E. 2562 (2019) (“2019 Principles and Guidelines”), which is another important instrument that oversees governance in the SOE sector. SEPO formulated them through an analysis of both national and international standards for good governance, encompassing both state-owned and private enterprises, such as the OECD Guidelines on Corporate Governance of State-Owned Enterprises, the World Bank’s Toolkit on Corporate Governance of State-Owned Enterprises, as well as local standards like the 2017 Corporate Governance Code for Listed Companies and the 2012 Principles of Corporate Governance of the Stock Exchange of Thailand. Table 1.10 elaborates on dimensions of corporate governance specified in the 2019 Principles and Guidelines.
These guidelines apply to all SOEs including subsidiaries and provide recommendations and best practices for them to follow. According to the Section 29 of the 2019 SOE Act, SEPO has the authority and power to assess all SOEs based on criteria set by SEPC, and these criteria must include the 2019 Principles and Guidelines.
However, these guidelines do not have the same legal binding force as statutes or regulations, as SEPO lacks enforcement powers. Compliance is voluntary, with the expectation that SOEs either adhere to them or provide an explanation for any deviations. Directors of SOEs have the flexibility to either adopt the principles and guidelines for good governance outlined in this document, implementing them as appropriate, or provide justifiable reasons for not doing so based on their management practices and relevant laws and regulations specific to each SOE. If compliance proves unfeasible, they are required to provide explanations to the owners and stakeholders. Compliance with these guidelines may be encouraged or required by regulatory authorities or may be considered a factor in assessing the performance and accountability of SOEs.
The following laws and regulations collectively shape the corporate governance landscape in Thailand:
Source: Information provided by SEPO.
Source: Principles and Guidelines on Corporate Governance for State-Owned Enterprises B.E. 2562 (2019).
Furthermore, the State Enterprise Corporatisation Act, B.E. 2542 (1999) outlines the procedures and mechanisms for converting SOEs into shareholding companies. It addresses the roles of various entities, including the cabinet and relevant committees, in overseeing the corporatisation process.
It serves as a tool for the government to convert government agencies or state-owned business units, which are considered SOEs, into limited companies or public limited companies, while still retaining their status as SOEs. The intention is to achieve this conversion without needing to extensively amend the establishment law. The primary goal is to increase private sector involvement in SOEs, enabling private companies to participate in certain business activities or sell shares to the public through the Stock Exchange of Thailand.
To fulfill this purpose, the act specifies the transfer of assets, powers, rights, or benefits of the SOE to the newly formed company. Additionally, the act includes important provisions related to employee matters, obligations guarantee, rights regarding the use of crown land or public property, as well as the dissolution of the SOE, among other aspects. In addition to these provisions, the act establishes two committees: State Enterprise Corporatisation Policy Committee and Company Establishment Preparatory Committee. These committees have specific roles within the process of corporatising SOEs.
In addition, this act establishes the procedures for transforming SOEs into shareholding companies and delineates the roles of the involved organisations (Figure 1.9). These organisations include:
1. Cabinet: Responsible for approving the principle of transforming the status of SOEs and granting authorisation for the conversion of SOE assets into shares.
2. State Enterprise Corporatisation Policy Committee: Responsible for providing opinions on the principles and guidelines governing the conversion of SOE assets into shares, as well as other pertinent to transformation details.
3. Company Establishment Preparatory Committee: Assumes a crucial role in establishing the new company. It prepares and advises on various aspects, ranging from the company's name to its organisational structure, in line with the principles approved by the Cabinet. Furthermore, it is responsible for preparation of a draft Royal Decree to uphold the company’s powers, rights and benefits, as well as a Royal Decree outlining the timeframe conditions for the dissolution of the SOE, should the transfer of all its operations take place.
Source: State Enterprise Corporatisation Act, B.E. 2542 (1999).
Since its enactment, there have been a total of five successful SOE corporatisations (Table 1.11). Of these corporatisations, four cases involved the complete conversion of the SOE’s capital into shares of a single company. In one instance, the capital of a SOE underwent transformation, leading to the establishment of two companies: CAT Telecom Public Co., Ltd. and Thailand Post Co., Ltd.
Note: In 2021, TOT Public Company Limited (TOT) merged with CAT Telecom Public Company Limited (CAT) to form a new entity named “National Telecom Public Company Limited” or NT.
Source: Data provided by TDRI.
The primary purpose of transforming SOEs into companies is to allow private sector participation in some business operations, either through joint ventures or by offering shares to the public on the stock market. Consequently, the government has registered SOEs that have been transformed into public limited companies on the Stock Exchange of Thailand. It’s important to note that, beyond the above-mentioned group of SOEs, there are other public companies that were formerly SOEs, such as Thai Airways International Public Co., Ltd., and Krung Thai Bank Public Co., Ltd. However, since these entities have less than 50 percent of their shares held by the government sector, they are not considered SOEs according to the definition outlined in the Budgetary Procedures Act B.E. 2561 (2018).
Since 2004, there have been intentions to corporatize other SOEs as well. However, the public has expressed resistance and opposition to these endeavors due to misconceptions and perceptions that corporatisation will lead to negative consequences for public welfare (e.g. over exploitation of natural resources). Therefore, the government has refrained from pursuing such reforms.
1.3.2. Sector-specific legal and regulatory framework applicable to SOEs
The specific legal and regulatory framework that applies to SOEs in Thailand is contingent upon the particular sector in which the SOEs are involved. Depending on the sector and industry in which an SOE operates, there may be specific regulations issued by the relevant ministries or authorities. Each sector is subject to its own distinct set of laws, regulations, and overseeing bodies responsible for supervising the operations of SOEs. The SOEs’ specific legal and regulatory framework by sector are summarised in Table 1.12. These regulations cover matters such as environmental standards, safety regulations, and industry-specific practices.
Source: Information provided by TDRI.
1.3.3. Other relevant laws and regulations applicable to SOEs
Other laws and regulations applicable to SOEs can be broadly categorised into four main areas: labour relations, financial management, disclosure and public procurement.
Labour relations
State Enterprise Labour Relations Act B.E. 2543 (2000): In the past, SOE employees were not categorised as ordinary labour and were thus excluded from the protection provided by the Labour Relations Act B.E. 2518 (1975). Today, however, SOE labour affairs are governed by the State Enterprise Labour Relations Act B.E. 2543 (2000), including wages, welfare, and medical expenses. The State Enterprise Labour Relations Committee, established under the Act and headed by the Minister of Labour, oversees SOE labour affairs. It includes ex officio members and minister-appointed representatives from employers and employees. The Committee mediates disputes, sets employment standards, and prohibits lockouts and strikes to ensure continuous public services, potentially weakening SOE employees' labour rights. The State Enterprise Labour Relations Act B.E. 2543 (2000) does not explicitly mandate that the Committee ensure freedom of association and protection of workers’ rights for SOE employees. SOE labour disputes typically fall under Labour Court jurisdiction, with safety matters governed by the Occupational Safety, Health, and Environment Act B.E. 2554 (2011). However, under certain circumstances, such as those involving criminal allegations like embezzlement or assault during a labour dispute, cases may be escalated to criminal courts.
Offences of Officials in State Organisation or Agencies Act, B.E. 2502 (1959): Employees of SOE, excluding ex officio officers, regardless of their position within the organisation, are subject to a criminal offense in addition to those prescribed in Criminal Code. Offenses prescribed in this Act can be categorised into three groups corruption, conflict of interest, and dishonestly exercise or omit their functions. Rationale behind the enactment of the Act is that SOEs, in the forms of organisations or other commercial forms, are not subject to any strict laws and regulations. To protect the national interest, SOE employees need to be put under harsh criminal penalties. Capital punishment is also prescribed as a penalty under this Act.
Disciplinary Offences of Government. Officials Performing Duties in Non-Government Agencies Act, B.E. 2534 (1991): This Act expands the regime of “government official status” to government officials beyond their ordinary government sectors. Government officials are still considered to bear a status of public official even if they are working ex officio or being appointed to work for SOEs, which is not categorised as government sector in Thai administration. As a result, any disciplinary rules that govern the conduct of public officials in the government sector apply to these officials working for SOEs as if they are working as an official in the government sector.
Financial Management
State Fiscal and Financial Disciplines Act, B.E. 2561 (2018): Derived from the Constitution, the Act regulates public finance discipline for stability and sustainability, unifying scattered public discipline laws. It establishes the State Fiscal and Financial Policy Commission, led by the Prime Minister, with broad powers over budget allocation, debt repayment, and financial risk management. However, this centralisation could lead to political influence on fiscal policies and inconsistency across administrations. For SOEs, strict finance regulations undermine their competitive ability, contradicting their purpose of operating efficiently in a free market.
The Ministry of Finance’s Regulation on Accounting and Finance of State Enterprise, B.E. 2548 (2005): SOEs in the form of listed company which registered in stock market of Thailand are not covered by this Regulation. The Permanent Secretary of Finance has the final authority to interpret the Regulation, with no option for administrative appeal. Annual net profit allocation is restricted to bonuses, dividends, state income, legally required reserves, and income tax. Any surplus allocation needs the approval of the Ministry of Finance. SOEs can only deposit cash in state-owned banks unless given specific permission to use private banks by the Ministry of Finance. Every SOE shall have a representative of the Finance Ministry on the board of directors.
Budgetary Procedures Act B.E. 2561 (2018): The law aims to improve budgetary procedures, management, and control. It broadly defines SOEs to cover all forms. Annual budget reports presented to the National Assembly must include the financial status of SOEs. Only the responsible minister can request budget adjustments from the Director of the Bureau of the Budget. SOEs must implement mechanisms to monitor and evaluate their action plans and budget expenditures, disclosing this information to the public. SOE employees can be held liable for unauthorised payments or debt in addition to any criminal liability.
Public Debt Management Act B.E. 2548 (2005) as amended: This Act, enacted after the 1997 Asian Financial Crisis, aims to improve public debt management. It allows the responsible minister to take loans for SOEs without legal personality, requiring investment plans and Cabinet approval for loans over 50 million baht. Such loans are exempt from the Budgetary Procedures Act B.E. 2561 (2018). The Ministry of Finance can repay SOE debts, becoming the creditor, and may take loans for on-lending to SOEs to boost their market competitiveness. The Ministry can guarantee SOE debt repayments but cannot do so for non-public utility SOEs with consecutive three-year losses.
Disclosure
State Fiscal and Financial Disciplines Act, B.E.2561(2018) and the Accounting Act, B.E. 2543 (2000): Financial reporting standards for SOEs are outlined in these Acts. State Fiscal and Financial Disciplines Act, B.E.2561 (2018), and the Accounting Act, B.E. 2543 (2000). Section 68 of the State Fiscal and Financial Disciplines Act specifies that SOEs must prepare an account and fiscal report in accordance with generally recognised accounting standards. The 2011 Cabinet decision further aligns disclosure requirements for non-listed SOEs with those of listed companies, mandating compliance with Thai Financial Reporting Standards (TFRS), which are translated and adopted according to International Financial Reporting Standards (IFRS). Non-compliance with disclosure obligations can be reflected in the performance evaluations of SOEs.
Public procurement
The Public Procurement and Supplies Administration Act B.E. 2560 (2017) regulates the procurement of goods, services, and construction projects by government agencies and SOEs, however its application to SOEs is obligatory for government-related procurement and excludes any commercial-related procurement of SOEs form its scope. The Act aims to ensure transparency, fairness, and efficiency in procurement processes, preventing corruption and favouritism. SOEs may use their own procurement procedures on commercial-related procurement.
1.4.1. Ownership arrangements and co-ordination
Thailand's ownership structure incorporates elements of what is in OECD terminology a 'dual ownership' model, exercised in combination with a degree of central government coordination. SEPO, an agency under the Ministry of Finance, along with individual line ministries, jointly exercises ownership over 52 central SOEs. SEPO establishes policy and planning direction, oversees the operational performance of these enterprises, determines the expected level of return for individual SOEs, sets remuneration, and approves bylaws and capital injections. Line ministries formulate objectives and operational strategies for the SOEs within their respective portfolios.
SEPO also works closely with SOEs during the objective setting process and collaborates with line ministries and relevant agencies in the management of SOEs. It functions as secretariat unit of SEPC. During the board nomination process, the line ministry and SEPO propose the names of potential directors to an authority for approval.
For board appointments for statutory corporations and unincorporated entities, which represent a majority of central SOEs, SEPO and the line ministry discuss and propose the names of potential directors using Skills Matrix to the Screening Committee, consisting of government officials and private sector representatives. These appointments are further subject to approval by the Cabinet. Enterprises held by line ministries are subject to certain fiscal and budgetary controls by the Ministry of Finance. It is worth noting that SEPO lacks specific enforcement authority. In addition, the Cabinet exercises control and oversight over SOEs through two bodies: the State Enterprise Policy Committee (SEPC) established in 2014 and chaired by the Prime Minister, which sets policies and provides recommendations to the Cabinet; and the National Economic and Social Development Council (NESDC) which approves SOEs’ budgets and overall investment frameworks.
The government also plays an important and direct role in SOE objective-setting processes. All SOEs must prepare a five-year SOE and annual action plan which set goals, policies, and directions for SOE development in accordance with applicable laws, national strategies and development plans. SOEs must also comply with the direction setting of SEPO and respective line ministries, on which basis SOE performance evaluation is conducted as per SEPO guidelines.
Thai laws require a separation of the duties and responsibilities of policymaking from regulation in order to prevent administrative interference and unfair competition. To that end, each industry is supervised by an independent regulatory body, such as the Office of Energy Regulatory Commission or the National Broadcasting and Telecommunication Commission (NBTC).
Nonetheless, SOEs enjoy certain exceptions from competition law under Section 4 of the Trade Competition Act B.E. 2560 (2017) in areas where they conduct activities in accordance with the law or resolutions of the Council of Ministers necessary for national security interests, public interest, the interest of society, or provisions of basic utilities. These exemptions are consistent with Section 75 of the Thai Constitution, which prohibits enterprises from engaging in competition with the private sector except in activities with the purpose of states security, public interest, or provision of public utilities.
The Government Public Procurement Act also grants certain privileges to some SOEs. Some SOEs in areas such as utilities also have natural monopolies, therefore discouraging the private sector from competing. The Thai government has mechanisms to subsidise SOEs when their finances are negatively affected by pursuing public service obligations. The Cabinet has the authority to intervene and aid SOEs facing financial troubles, such as debt or bankruptcy, based on recommendations from the SEPC. In such cases, relevant line ministries are required to present the issue to SEPC for review and investigation of the operations of the SOEs.
There have been continuous efforts by the Thai government to improve corporate governance standards for SOEs. In 2015, a major reform of the SOE sector was foreseen with the draft Development on Governance and Management of State Enterprises Bill (approved by SEPC in March 2015), which envisaged attributing direct ownership responsibilities to SEPO over statutory corporations, and establishing a holding company, the National State Enterprise Corporation, for incorporated SOEs. However, the reform only took place to a limited degree amid lack of popular support. The reform that came into effect on May 22, 2019, included the following key components:
SEPC was transformed into a "legal entity," with SEPO, which is responsible for monitoring corporate governance standards, serving as its secretariat unit. The Principles and Guidelines on Corporate Governance for State-Owned Enterprises B.E. 2562 (2019), developed by SEPO and approved by the Cabinet, were introduced. SEPO's guidelines are applicable to all SOEs and their subsidiaries. However, SEPO still lacks enforcement power.
A formal five-year development plan for SOEs, developed by SEPO, was introduced. Previously, these plans were agreed upon between the SOEs and the relevant line ministries.
In alignment with the five-year plan, a provision for government compensation to cover expenses and revenue losses resulting from public service obligations was implemented.
A more detailed performance assessment framework was introduced, now aligned with the targets outlined in the five-year SOE economic plan.
Currently, the legal and institutional framework for SOEs is based on various documents that outline policy priorities related to state ownership and management. These include:
1. The Development of Supervision and Management of State Enterprises Act, B.E. 2562 (2019) (SOEs Development Act), along with related legislation, is used by SEPO as the guiding principle for setting direction for the 52 SOEs that are under its direct supervision.
2. The SOE Development Plan B.E. 2566-2570 (2023 - 2027), a five-year plan, which is based on the Kingdom of Thailand’s Constitution, National Strategy, National Economic and Social Development Plan, and other related plans.
The Principles and Guidelines on Corporate Governance for State-Owned Enterprises B.E. 2562 (2019) elaborated by SEPO aims to increase transparency in the nomination and appointment of SOE board members. In instances where SOEs are not able to comply with the guidelines, they are required to explain the circumstances in their annual report and report to the owner and shareholders. These frameworks provide policy direction, goal setting, and ownership policies for SOEs. Finally, these are complemented by a number of other relevant laws and regulations, as well as guidelines on good corporate governance. It is notable that the framework also varies based on the nature of the SOE and the sector it operates in, with specific regulations tailored to different industries.
1.4.2. Institutional actors
A number of institutions are involved in the oversight of state-owned enterprises in Thailand. These include SEPO, the Performance Assessment Committee (PAC), National Economic and Social Development Council (NESDC), and State Enterprise Policy Committee (SEPC), whose roles and responsibilities are outlined in further detail below. For an overview, role of the line ministries involved in the supervision and management of these SOEs, and the role of regulatory authorities in the SOE governance landscape, refer to Table 1.13 and Table 1.14.
The State Enterprise Policy Office (SEPO) of the Ministry of Finance acts as the owner and shareholder of all central 52 SOEs, coordinating policy formulation and governance of SOEs, determining the expected level of return for individual SOEs, and assessing their performance. SEPO also works closely with SOEs during the objective setting process.
Serving as the SEPC secretariat, SEPO recommends policies, regulations, and measures for SOE administration and development, ensuring compliance with laws and policies. It provides technical assistance for organisational development, manages PPP projects, and uses the Development of Supervision and Management of State Enterprises Act B.E. 2562 (“2019 SOE Act”) as a guiding framework. SEPO also issues guidelines, evaluates SOE efficacy under the SE-AM system, focusing on corporate governance, leadership, risk management, internal control and stakeholder management. Along with individual line ministries, SEPO jointly exercises ownership over 52 central SOEs where the government holds full or majority ownership.
In 2019, SEPO appointed the Performance Assessment Committee (PAC) to assess the performance of SOEs according to criteria set by the SEPC under Section 29 of the 2019 SOE Act. Chaired by the Director General of SEPO, the Committee consists of up to 13 committee members representing both the government and the private sector. The composition of the PAC is described in detail in Section 1.4.7 on performance evaluation framework for SOEs.
In 2020, as part of its mandate, SEPC approved SE-AM as the official evaluation system for SOEs. PAC members serve four-year terms and must declare no conflicts of interest in SOE matters. Meanwhile, SEPO also recognises that qualified individuals must adhere to ethical standards, avoid conflicts of interest, maintain data confidentiality, and be cautious of misuse or inappropriate use of information.
The National Economic and Social Development Council (NESDC) approves budgets and overall investment frameworks for SOEs and formulates national strategies and social development. It contributes to the National Economic and Social Development Plan, proposing regularly changes and work plans for the public sector, including SOEs, reviewed by the Prime Minister and Cabinet. The NESDC also evaluates annual budgets of non-publicly listed SOEs, assessing expenditure, financial capacity, environmental impacts, project and risk management, and human resources. It submits these assessments to Cabinet for approval. For companies where the Ministry of Finance holds over 50% shares, Cabinet approval is required for their investment projects, while public companies are generally obligated to consider budget of significant projects, such as the Airports of Thailand (AOT) initiative aimed at airport enhancement.
Source: Author based on submissions from SEPO and TDRI.
State Enterprise Policy Committee (SEPC): The SEPC is composed of the Prime Minister as Chairperson, a Deputy Prime Minister as Vice-Chairperson, several ex officio members including ministers and high-ranking officials, five qualified members appointed by the Cabinet, and the Director General of SEPO as a member and Secretary of SEPC. Qualified members in SEPC have a term office of four years with a maximum tenure of eight years (See Box 1.1).
More specifically, the SEPC has the authority to issue the guidelines and principles on SOE works and establishes a framework for assessing the efficacy of SOEs under the State Enterprise Assessment Model (SE-AM) system. The SE-AM consists of key performance areas that are centered around corporate governance, leadership, risk management, internal control, and stakeholder and human capital management. Furthermore, SEPC has the authority to intervene and provide assistance to SOEs when they face financial troubles, debt, or declare bankruptcy as a result of pursuing public policy objectives.
The SEPC plays a critical role in developing the five-year State Enterprise Development Plan, which establishes the framework for development policies and investment directions. The SEPC ensures that supervising ministry of the SOE integrate the Plan into the individual SOEs’ five-year enterprise plan and annual action plan. Simultaneously, the Committee is responsible for establishing performance evaluation criteria for SOEs. Subsequently, the SEPO, functioning as the secretariat unit for the SEPC, evaluates the performance of SOEs according to the criteria established by the Committee.
The SEPC consists of the following members:
1. The Prime Minister as the Chairperson of the committee
2. One Deputy Prime Minister assigned by the Prime Minister as the Vice-Chairperson of the committee
3. Ex officio members, including the Minister of Finance and two other ministers appointed by the Cabinet, the Permanent Secretary of the Minister of Finance, the Secretary-General of the Council of State, the Secretary-General of the National Economic and Social Development Council, and the Director of the Budget Bureau; and
4. Five qualified members appointed by the Cabinet.
5. The Director-General serves as the committee’s member and secretary and is empowered to appoint no more than two government officials in the Office as assistant secretaries. The five qualified members must have the following qualifications and must not possess the following prohibited characteristics:
Qualifications:
1. having Thai nationality
2. demonstrating proven knowledge and experience which is beneficial to the supervision and management of state-owned enterprises.
3. Prohibited Characteristics:
4. having an unsound mind or mental infirmity
5. being incompetent or quasi-incompetent
6. being bankrupt or having been dishonestly bankrupt
7. having been sentenced by a final judgement to imprisonment regardless of whether there is a suspension of the sentence except for an offence committed through negligence or a petty offence
8. having been subject to a final judgment or a final court order requiring to vest the person’s assets in the State on the grounds of unusual wealth or unusual accumulation of interests
9. being a political official, holding an office in a political party, being an officer of a political party, being a member of the House of Representatives, being a member of the Senate, being a member of a local assembly or a local administrator
10. being a government official, a staff member or employees holding a position or receiving a salary of the central, provincial or local government organisations or such other government agencies
11. being a director, executive or employee of a state-owned enterprise
12. being a director, executive or employee of a juristic person in which a state-owned enterprise holds at least 25% of shares.
Source: Development of Supervision and Management of State Enterprises Act B.E. 2562 (2019)
Source: Author based on submissions from SEPO and TDRI.
Source: OECD analysis based on information provided by SEPO.
1.4.3. Board governance of state-owned enterprises
Thailand employs a two-tier board system for SOEs structured as statutory corporations, resulting in the distinction between two types of SOE boards. Typically, supervisory boards in these entities are composed of ex officio representatives of responsible government organisations, experts, and the CEO of the SOE.
There are two categories of regulations, acts and rules that govern director appointments across different types of SOE boards. Supervisory boards of SOEs are governed by specific acts concerning supervisory board members, and their establishment laws. Furthermore, they are expected to adhere to the Principles and Guidelines on Corporate Governance for State-Owned Enterprises B.E.2562 (2019) (“2019 Principles and Guidelines”). Management boards, on the other hand, are generally governed by internal rules within their respective enterprises.
Supervisory boards are internally structured into three levels: the chairperson, who leads the board; other directors; and the CEO, who serves both as a director and as a secretary for the other supervisory board members. Typically, the chairperson is designated from among the board members by the Cabinet or the responsible minister, in accordance with governing law. The management board usually consists of the CEO, vice CEOs, and assistant CEOs, and unlike the supervisory board, it has a hierarchical structure.
The supervisory board holds the highest authority within the SOE and oversees all activities and policies. It can exercise its power over nearly every aspect of an SOE, including human resources, internal appeals, financial policies, and disciplinary regulations. Additionally, it supervises the work of the management board.
One-third of directors are required to be independent as per Section 3 of the 2019 Principles and Guidelines. These independent directors should maintain independence from management, major shareholders, shareholder groups, government agencies, or any entities that could influence non-independent decisions. Their role involves making decisions that align with the mission, goals, and interests of SOE stakeholders. The Guidelines also mandate that boards establish policies and procedures to monitor and manage conflicts of interest.
Since committees within the appointment mechanism are appointed by the Cabinet, supervisory board members are closely linked to state agencies and policy makers. As SOEs are the primary providers of public services in the country, the supervisory boards hold significant influence over decision-making. As a result, state agencies often seek to partially influence the appointment process to fulfil their public mandates.
Board composition and size
Information provided by the Thai authorities on the 10 largest commercial SOEs7 (in terms of revenue) shows that their board size varies between 8 and 14 members, with a majority of SOEs having 13 members, which is larger than the OECD average SOE board size. Their composition is varied, including about 42% public officials and 8% employee representatives (typically 1 per SOE). About 19% of board members are women (Figure 1.11).
The data suggests that approximately 47% of all board members are independent from the state. However, the level of their independence may vary because most board members are appointed directly by the state, and there are varying definitions or criteria of independence established in the law and applicable regulations.
For instance, the Qualifications and Scope of Work of the Audit Committee B.E. 2558 (2015) define the scope of independent directors more broadly than the 2019 Principles and Guidelines. These documents have different interpretations regarding the classification of "civil servants or government officials from other ministries” as independent directors in audit committees. For example, in the case of PTT, individuals representing the Ministry of Energy and the Office of the National Economic and Social Development Council (NESDC) are considered independent directors according to the Qualifications and Scope of Work of the Audit Committee B.E. 2558 (2015). However, according to the 2019 Principles and Guidelines, these government officials are not categorised as independent directors.
Furthermore, the Regulations of the Ministry of Finance on Standards and Criteria for Internal Audit Operations for Government Agencies B.E. 2566 (2023) (No. 4) stipulate that members of the Audit Committee must be from the board and not have prohibited characteristics. These include not being a civil servant, employee, consultant, or person receiving a salary, wages, or compensation, and not being involved in the administration of that government agency.
The practices at the Bank for Agriculture and Agricultural Cooperatives also specify that independent directors should not represent civil servants, government agencies, or departments, as outlined in Section 14 of the Agricultural and Cooperative Bank Act B.E. 2509 (1966). This includes representatives of the Ministry of Finance, Ministry of Agriculture and Cooperatives, Department of Cooperative Promotion, Agricultural Land Reform Office, Bank of Thailand, and agricultural cooperatives.
Source: Information provided by SEPO as of end-2023.
1.4.4. An overview of supervisory board appointments
Supervisory board members, excluding ex officio members, are appointed, in most cases, by the Cabinet or the responsible minister (Table 1.15). As a result, the supervisory board is closely tied to state agencies and policy makers. This mechanism raises concerns about the transparency of the member appointment process and the quality of individual members. Several attempts have been made to address these concerns, the most impactful being the enactment of (1) the Development of Supervision and Management of State Enterprises Act B.E. 2562 (2019) (“2019 SOE Act”) and (2) the Standard Qualifications of State Enterprise Directors and Employees Act B.E. 2518 (1975).
It is notable that the appointment procedure prescribed in the 2019 SOE Act is limited in its scope of application to SOEs that are not structured as a limited liability company (LLC) or a public limited company (PLC), where supervisory board members are appointed through the shareholders’ general meeting in accordance with either the Civil and Commercial Code or the Public Limited Companies Act B.E. 2535 (2019) (PLC Act). SOEs in such legal forms may also alter the procedures for appointing supervisory board members through their articles of association.
The Standard Qualifications of State Enterprise Directors and Employees Act B.E. 2518 (1975) applies universally to all SOEs. Therefore, SOEs in any form, including LLCs and PLCs, are required to comply with the prescribed standard qualifications. This means that even SOEs structured as private entities and governed by private law have their autonomy limited by the Act. As a result, SOEs in the forms of LLCs and PLCs can only exercise their autonomy in appointing board members within the limits of the Act.
Source: The author's compilation based on relevant laws pertaining to the establishment of SOEs in Thailand.
1.4.5. Procedure for supervisory board appointments
The procedure for supervisory appointments are governed by the Standard Qualifications for Directors and Employees of State Enterprises Act, B.E. 2518 (1975) and the 2019 SOE Act. The Standard Qualifications Act outlines the eligibility criteria for candidates to the supervisory board while the 2019 SOE Act prescribes the appointment procedures.
A candidate is eligible for appointment if they meet the qualifications prescribed in the Standard Qualifications Act. The following qualifications are required by the Act:
being a Thai national
not older than 65 years old
holding suitable qualifications and experience relevant to the business of SOEs
not being bankrupt or ever being declared fraudulently bankrupt
never having been convicted of a crime except for minor offenses or negligence
being mentally competent
never having been convicted as an unusually wealthy person or having had any assets confiscated due to unusual wealth.
In rare circumstances, depending on an individual SOE’s business, a foreign national could be eligible to be a board member on a case-by-case basis. The Act also stipulates that a member of supervisory boards must not be a political party executive. Section 5 of the Act specifies that directors of SOEs must not be politically-affiliated public officials, except when required by law to hold such positions.
Some SOEs have established their own qualifications in addition to the standard qualifications prescribed by the Standard Qualifications Act B.E. 2518 (1975). For example, members of the supervisory board of the Expressway Authority of Thailand (EXAT) must not be employees of any other organisation. Another example is the Electricity Generating Authority of Thailand (EGAT), where supervisory board members must have no conflict of interest in any contract in which EGAT participates or is one of the parties.
Appointment procedure
SOEs have different legal statuses, leading to variations in the processes for appointing board members. According to Section 3 of the 2019 SOE Act, “state-owned enterprise” means: (1) a government organisation under the Law on the Establishment of Government Organisations, a state-owned undertaking under the law on the establishment of such an undertaking, or a government-owned business organisation; and (2) a private limited company or a public limited company in which the Ministry of Finance holds more than 50 percent of capital.
In Section 34 of this law, specific processes are established for the appointment of State Enterprise Directors, particularly for the SOEs in the first category. For SOEs falling under the first definition, which includes the majority of centrally-held SOEs, the selection of board members must go through the Screening Committee before being proposed for appointment by the Cabinet or the responsible minister in accordance with governing law. In contrast, SOEs in the second definition do not require this process and can select and appoint board members through the Shareholders' General Meeting. For SOEs in the first definition, only candidates who meet the qualifications can be nominated for the appointment procedure. The procedure, as provided by the 2019 SOE Act is described in Box 2.2.
The OECD assessment team was informed that often during the board appointment process, there is a negotiation process between SEPO and the relevant line ministry in charge of the appointments. During the nomination process, the line ministry and SEPO propose the names of potential directors to the relevant authority for approval. SOE boards of directors can also include ex officio members from ministries, and some can be chaired by civil servants.
Appointment of management
For unincorporated SOEs, the CEOs are generally appointed by the supervisory board of an SOE with approval from the Cabinet, or line ministry depending on their establishment law. The supervisory board may remove the CEO from office by three-fourth majority vote. The decision to remove a CEO also needs to be approved by the Cabinet and line minister in accordance with established law. CEO recruitments are administrated by the nomination committee appointed by the supervisory board. Procedures of recruitment are governed by internal regulations and thus differ between various SOEs. In terms of LLCs and PLCs, the board of directors wields the authority to appoint and remove the CEO.
1.4.6. Financial controls in the SOE sector
SOEs must comply with national accounting standards and submit annual financial reports to the State Audit Office and the Ministry of Finance, as well as an audit report to the State Audit Office, the Ministry of Finance, the Budget Bureau, and the line ministry. Section 56 of the Constitution of Thailand contains transparency requirements that individuals shall be granted access to public information held by SOEs, unless such disclosure would affect public security, public safety, and personal data. Furthermore, Section I of the Public Information Act, B.E. 2540 (1997) requires SOEs to make readily available all requested information, except when considered concerning national security.
The State Audit Office
The State Audit Office of the Kingdom of Thailand (SAO) is responsible for assessing spending of public agencies, including SOEs. It conducts financial audits through financial reports; compliance audits through monitoring adherence to law and recommendations reports; and performance audits through monitoring efficiency and efficacy of spending. Under the State Fiscal and Financial Disciplines Act, B.E.2561 (2018), SAO auditing unit can authorise external auditors; however, an external audit of SOEs’ financial statements by an independent (private) external audit firm is not clearly mandated. Whenever external independent audits take place, they are limited to financial audits, and the process by which external auditors are selected is unclear. There are no stipulations regarding the rotation of audit firms. Compliance and performance audits are conducted solely by the SAO.
SAO is in principle an independent organisation which answers to the Parliament of Thailand. It submits annual report to the Parliament and, under the latest State Audit Act, must defer all corruption matters to the Thai Anti-Corruption Commission. However, SAO itself has the jurisdiction to investigate financial anomalies that may have caused damage to the Thai state or society.
SAO is divided into three parts under the Organic Act on State Audit B.E. 2561 (2018): the State Audit Commission, the Auditor General, and Office of the Auditor General of Thailand. While the Fiscal Discipline Act of 2018 requires the SAO to report misconduct to the Anti-Corruption Commission, a new law will require the State Audit Commission to evaluate the incident and prescribe disciplinary measures. The State Fiscal and Financial Disciplines Act mandates that the SAO inspects all government agencies within 180 days.
The Comptroller General’s Department
The Comptroller General’s Department (CGD) is a department under the Ministry of Finance. It is responsible monitoring, controlling and administering public funds to ensure all government agencies comply with all rules and regulations related to public finances also to supply fiscal information, analysis and advice to ministerial top management and other policy-setting bodies. Financial operations and expenditures and conducting financial audits and reviews of government entities. These audits typically help identify any financial irregularities, wasteful spending, or other inefficiencies. The CGD works to provide standardised financial reporting and budgeting disbursement processes, which contributes greater fiscal discipline and control.
The CGD established auditing standards and manuals for internal auditors in all government agencies and provides consultation. It also conducts evaluations of the quality of internal audits for SOEs every five years. Government agency internal investigators receive training. The CGD holds no positions within SOEs. The audit committee is responsible for reviewing transactions, although this is not a function of internal audit. The composition of the audit committee is determined by SEPO. The Internal Audit Report reports directly to the head office, based on the guidance provided by CGD.
1.4.7. Performance evaluation framework for SOEs
The performance of SOEs varies due to differences in their responsibilities, goals, and market characteristics. Some are engaged in infrastructure projects, some provide essential public services, some operate due to inadequate private sector involvement, some are designated as government-controlled entities, while others serve as tools for semi-fiscal activities. Some also operate in highly competitive markets, and a few may face inherent constraints on their business operations. These differences contribute to the diverse outcomes and characteristics of each SOE.
According to Thai authorities, the government is poised to assess the role of SOEs as part of formulating the SOEs Development Plan, considering the evolving landscape and alignment with the national plan. The plan explicitly defines SOE duties and responsibilities, including financial objectives, capital structure, and risk management. Furthermore, the government has adopted regulatory oversight mechanisms to ensure the proper implementation of SOE objectives.
As per the 2019 SOE Act, the SEPC is responsible for establishing evaluation criteria to assess the performance of SOEs. Subsequently, the SEPO, a government entity overseeing SOE activities, is tasked with evaluating the performance of SOEs based on the criteria set forth by the SEPC. To facilitate this process, SEPO has established a Performance Agreement Committee (PAC) and SubPAC for each sector of SOEs to conduct performance assessments (See Box 1.4).
During the process of performance evaluation for SOEs, SEPO, line ministries, and the SOEs collaborate to establish performance indicators for evaluation, based on the criteria defined by SEPC. Each SOE is responsible for disclosing and providing the necessary data to support SEPO’s performance assessment. The performance indicators vary among different units, encompassing both financial and non-financial aspects, depending on the nature of their operational goals and major investment projects.
For instance, in the case of the Mass Rapid Transit Authority of Thailand (MRTA), the set performance indicators include revenue from operations, progress of mass transit system projects, cost reduction amount, and the number of train service users (MRTA, 2022[18]). The Expressway Authority of Thailand (EXAT), the SOE that operates the expressway, establishes performance targets such as net profit, customer satisfaction rate, reduction of accident occurrences, average daily traffic volume, and Integrity and Transparency Assessment (ITA) (EXAT, 2021[19]). Nevertheless, even though each SOE has distinct specific targets, all SOEs are required to operate in alignment with the national strategy, government policies, and its own strategic plans.
Members are appointed by position, such as the Director General of SEPO, who serves as the committee chairperson, and the State Enterprise Performance Appraisal Advisor, who serves as a committee member.
1. A maximum of nine qualified individuals appointed by SEPO, selected from experts with expertise and experience in public administration management and the supervision and management of SOEs, as well as from the private and academic sectors.
2. The Director of the Monitoring and Assessment Bureau serves as both a committee member and secretary. Additionally, one government official at the Senior Professional level within the Monitoring and Assessment Bureau serves as both a committee member and assistant secretary.
In 2020, as part of its mandate, SEPC approved SE-AM as the official evaluation system for SOEs. PAC members serve four-year terms and must declare no conflicts of interest in SOE matters. Meanwhile, SEPO also recognises that qualified individuals must adhere to ethical standards, avoid conflicts of interest, maintain data confidentiality, and be cautious of misuse or inappropriate use of information.
Source: SEPO.
The result of SOE performance information is required to be linked to a performance incentive system, which includes both financial (an annual bonus) and non-financial (SOE awards) components, aiming to enhance the financial, operational, and fiscal performance of SOEs. Within the performance incentive system, incentives for SOEs are categorised into six groups: (1) those for listed companies in the stock market, the Board of Directors will have full power to make decisions for bonuses depending on their financial performance; (2) bonuses for revenue-oriented SOEs will be based on their performance and profits, and SEPO has the power to approve the amount of the annual bonus; (3) a performance-based incentive; (4) promotional for non-profit-driven SOEs; (5) fixed bonuses for Metropolitan Electricity Agency (MEA), Government Lottery Office (GLO); Export-Import Bank of Thailand (EXIM); and Aeronautical Radio of Thailand (AEROTHAI); and (6) specific bonuses for SME Bank and Bank of Agriculture and Agricultural Cooperatives (BAAC) as these entities are used for subsidizing SMEs and agriculture sectors.
1.4.8. Anti-corruption context for Thai SOEs
Anti-corruption bodies
There are several entities that are responsible for monitoring the implementation of the anti-corruption. The Office of the National Anti-Corruption Commission (NACC), first established in 1999, is the principal body for investigating corruption cases. The office of the Public Sector Anti-Corruption Commission (PACC) and the Royal Thai Police are also entitled to investigate cases of potential corruption. For example, the Anti-Corruption Operations Center one of the channels which receives and forwards complaints to the NACC or other of the two agencies. The Anti-Corruption Operations Center receives and forwards complaints to the NACC or other of the two agencies. Each of the organisations are mandated to be independent from one other, and NACC typically investigates cases of corruption by all ranking government officials and politicians, while PACC, is in charge of investigating cases of corruption by low-level government officials.
Section 19(4) of the Organic Act on Anti-Corruption, B.E.2542 (1999) separates the investigative power of the Office of NACC and PACC, specifying that the NACC is liable to conduct investigation where the alleged wrongdoers hold political status and all level government official. According to the new Act (2018), the NACC is responsible to investigate all level government officials and not only the chief executive position. The NACC is also responsible for analysing and disseminating knowledge regarding the risks of corruption and misconduct in both public and private sectors.
The NACC has the powers to conduct investigation into allegations of public corruption and other related offences, including bribery of domestic and foreign officials, embezzlement, collusion in public procurement, unusual wealth, malfeasance in public office and severe ethical violations. All cases that fall within the powers and duties of the NACC are resolved by the resolution of the NACC Board, which consist of 9 members. The cases must be resolved within two years, eligible for a one-year extension, except for the international corruption cases. In the case there are grounds for disciplinary penalty, the NACC shall submit a report, inquiry file, documentary evidence and decision to the superior or authorised person for removal for further disciplinary procedure. In case there are grounds for penalty, the NACC shall submit a report, inquiry file, documentary evidence, electronic copy and decision to the Attorney-General for further initiation of prosecution. In the event that the Attorney-General decides not to pursue the case, the NACC is empowered to prosecute its cases to the competent Court.
Overall, roles of and collaboration between the principal anti-corruption bodies can be summarised as follows:
Enforcement: Conducted by the State Audit Office, which examines the expenditure of public sector agencies to combat corruption. Additionally, the NACC works towards preventing and combating corruption at the national level, along with the PACC, by implementing measures to prevent corruption within the public sector, including addressing corruption and misconduct among and government officials and serious offenses as assigned by the NACC.
Knowledge dissemination: Undertaken by the Anti-Corruption Foundation and the Anti-Corruption Organisation of Thailand, focusing on promoting awareness and disseminating knowledge to combat corruption.
Prevention: executed by the Thai Private Sector Collective Action Against Corruption, emphasizing preventive measures against corruption within the private sector.
1.4.9. Legal and regulatory framework on anti-corruption and business integrity applicable to SOEs
The principal legislation governing anti-corruption efforts in Thailand is the Organic Act on Anti-Corruption B.E.2561 which first came into force in 1999. The Anti-Corruption Act applies to both the public and private sectors, including SOEs, which in principle are held to a high standard due to their influence on Thailand’s economy and public policy objectives. The Anti-Corruption Act includes provisions to prevent bribery, embezzlement, and abuse of power. Section 128 of the Act prohibits public officials from accepting assets or other benefits that may be calculated in monetary value from any person, with certain exceptions under the criteria prescribed by the National Anti-Corruption Commission.
In 2018, the Organic Act on Anti-Corruption was updated, with the Organic Act on Counter Corruption, B.E. 2561 (2018) coming into full force on 22 July 2018. The updated law specified that legal entities, including corporations and SOEs, can be criminally liable for bribes given to the Thai state officials, foreign state officials, and officials with intergovernmental organisations. The Law specifies that the legal entity is liable when the bribe is provided by an “associated person,” including, amongst others, employees, joint venture partners and agents. Importantly, the 2018 Law added the term “Public Officer” separately to distinguish them from State Officials and updated the definition of State Official such that a person holding a political position falls under the definition of Public Officer instead.
Furthermore, the Corporate Governance Act for State-Owned Enterprises, B.E. 2562 (2019) mandates the establishment of anti-corruption measures with SOE, such as the implementation of compliance programs and internal controls. The Act also mandates SOEs to conduct regular audits in order to detect and prevent corrupt practices.
According to the State Fiscal and Financial Disciplines Act, B.E. 2561 (2018) and Ministry of Finance’s Regulation on Accounting and Finance of State Enterprise, B.E. 2548 (2005), SOEs are required to establish a suitable accounting system based on generally accepted accounting principles, and to record financial transactions that accurately reflect the actual business operations and financial position of the SOEs and ensure good internal controls. The Office of the Auditor General acts as the accounting auditor for all SOEs. SOEs are further required to prepare operational plans, financial statements, and one-year advance financial plans for accounting periods to submit to the Ministry of Finance within the first month of the accounting year for which they are used. SOEs are also required to prepare financial status reports on a quarterly basis and submit them to the Ministry of Finance within 45 days after the end of each quarter. Furthermore, according to Section 13 of the Regulation, SOEs are required to deposit their funds with state-owned banks, in accordance with the budgeting regulations.
The State Fiscal and Financial Disciplines Act, B.E. 2561 (2018) and the Ministry of Finance’s Regulation on Audit Committee and Audit Unit of State Enterprise, B.E. 2555 (2012) requires SOEs to appoint audit committees consisting of one chairperson and between 2 and 4 committee members. The responsibilities of the committee include examining the effectiveness and efficiency of internal control processes, oversight processes, and risk management processes; auditing and ensuring the accuracy and reliability of the financial reporting of the SOEs; auditing and ensuring that the operations of SOEs comply with laws, regulations, rules, working procedures, Cabinet resolutions, announcements and relevant orders; disclosing the annual report of the audit committee’s performance and renumeration of the auditor’s in the SOEs’ annual report, and other related responsibilities. SOEs are also required to establish an Internal Audit Unit that reports directly to the Audit Committee and carries out internal audit duties.
Building on the framework established by the audit committees, the SEPO has further enhanced transparency and integrity in public-private partnerships (PPPs) through specific regulatory measures. Notably, the Public-Private Partnership Act B.E. 2562 (2019) introduces requirements that aim to safeguard the integrity of large-scale infrastructure projects. These include the mandatory involvement of observers from the Anti-Corruption Organisation of Thailand (ACT) during the bidding process to ensure transparency. This is complemented by the implementation of an Integrity Pact, a formal agreement among the procuring public body, bidding companies, and a third-party organisation, usually from civil society, to monitor compliance throughout the procurement process. Such measures are vital as they extend the oversight beyond internal SOE operations to encompass interactions with the private sector. While these PPP projects generally conclude with the transfer of ownership back to the public sector, the integrity and transparency mechanisms apply throughout the duration of the project, supported by the overarching Public Procurement and Supplies Administration Act B.E. 2560 (2017), which governs procurement activities by SOEs.
Nonetheless, challenges remain in Thailand’s anti-corruption framework. Procurement procedures are typically designed to mitigate corruption and independent observers, following Integrity Pacts, usually supervise these processes. However, in the past 2-3 years, the effectiveness and anti-corruption role of the Integrity Pact mechanism have diminished. This change is a result of the alterations in its framework, where government entities now opt for observers instead of representatives from qualified civil society or non-governmental organisations.
These modifications, coupled with imposed constraints, have created potential challenges related to corruption. For instance, over the last few years, the procurement processes of projects within SOEs have encountered a significant challenge characterised by undue favouritism and protection of individuals with influence. Notably, there have been instances of altering project operations beyond the defined scope outlined in the Terms of Reference (TOR), resulting in benefits exceeding initial projects by 30-40%.
This raises concerns about the potential long-term financial implications that the state may incur to rectify these alterations. While the Anti-Corruption Thailand has brought this matter to the attention of corruption-related agencies and relevant entities, no subsequent action has been taken to address it. Measures could be taken to refine the Integrity Pact to conform to elevated international standards.
Overview of cases of corruption amongst SOEs
Source: Based on latest available information provided by Thai authorities as per the NACC Annual Report in 2017-2021.
The primary focus of the cases discovered and investigated by the NACC regarding corruption within SOEs in 2021 was to expose inconsistencies within the procedures for procuring and tendering government projects. Additionally, the commission also addressed various other anomalies, including instances of minor, petty, and summary offenses. Furthermore, according to the latest report provided to the assessment team, the commission handled cases related to corrupt activities in the economic, natural resources, environment, and public services sectors, as well as cases related to ethics and misconduct, as outlined in Table 1.16.
Reforming the SOE sector has been on the agenda for the past few decades, initially beginning with the announcement of the Master Plans for Privatisation of SOEs in 1998 in the aftermath of the Asia Financial Crisis. Since then, the Thai government has produced reforms aimed at improving the efficiency and productivity of the SOE sector. As seen in the previous sections, the SOE reform process in Thailand is closely linked with the country’s overall efforts to modernise its economy and achieve significant public policy objectives, roles in which SOEs are critically important.
Thailand’s Twelfth National Economic and Social Development Plan (2017-2021) points out problems within the SOE sector and potential areas for reform. The Plan acknowledges that supervision of SOEs is “incomplete, lacks effective strategic plans, and has complicated management procedures, resulting in ineffective performance.” It also acknowledges other issues in the SOE sector, including that the role of SOEs as both the regulator and operator can result in unfair competition with segments of private sector which competes in the same industries, in turn depriving consumers of “a guarantee of high-quality services at a reasonable cost.”
The Plan also points out that many SOEs suffer “high losses”; there is a “lack of unity” about SOEs’ supervision structures; and SOEs are “interfered with or controlled by other organisations”. The Twelfth Plan envisages an adjustment to the renumeration, and benefits systems enjoyed by SOE executives, as well as to enterprises’ long-term development strategies (including restructuring and mergers), to realign them with their missions and objectives. It states the importance of separating SOEs’ roles of policymakers, regulators and operators by “enhancing the regulatory and supervisory framework of SOEs.”
Thailand’s Thirteenth National Economic and Social Development Plan (2023-2027) focuses on technological innovation and includes SOEs as one of the agencies within which the use of all types of electric vehicles should be promoted. In the past year, SEPO established the SOEs Development Plan B.E. 2566-2570 (five-year plan) to support the implementation of the National Strategy, the National Economic and Social Development Plan, the National Reform Plan, and the State Security Plan. The SOE Development Plan sets out a path to achieve the goals set out by the State-Owned Enterprises Development Act B.E. 2562 (2019).
References
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← 1. In accordance with the 2017 Constitution, the initial cohort of 250 appointed senators, who had the power to vote for the Prime Minister, had a five-year term that came to an end in May 2024. The recently selected 200 senators in July 2024, chosen from 20 professional groups, no longer possess the power to vote for the Prime Minister.
← 2. In accordance with the 2017 Constitution, only the first set of 250 Senators had the right to vote for the Prime Minister. Due to the end of the mandate of the first cohort of 250 Senators in May 2024, the new cohort of 200 senators no longer has this right.
← 3. The scope of the public sector defined here includes central government, regional governments, sovereign wealth managers and public pension funds (OECD, 2024).
← 4. The SOEs under rehabilitation plan in 2022 remain as follow: (1) the State railway of Thailand (SRT) (2) Bangkok Mass Transit Authority (BMTA) (3) NT Public Company Limited and (4) MCOT Public Company Limited
← 5. According to Annual Budget Expenditure Act B.E. 2566 (2023), subsidies for SOEs imply that SOEs receive financial support for their expenses from the annual budget.
← 7. The sample includes information from the following SOEs: 1) PTT Public Co., Ltd; 2) Electricity Generating Authority of Thailand; 3) Provincial Electricity Authority; 4) Metropolitan Electricity Authority; 5) Government Lottery Office; 6) National Telecom Public Co., Ltd; 7) Government Savings Bank; 8) Bank for Agriculture and Agricultural Cooperatives; 9) Government Housing Bank; 10) Tobacco Authority of Thailand