Major Impact to the Thai Energy Sector: Draft Legislation on New Foreign Investment Restrictions

In Thailand, the energy sector which is regulated by the Energy Regulation Committee (the ERC) has never been restricted exclusively for Thai nationals.  In other words, both Thai and foreign power producers are free to undertake energy business in Thailand once they have obtained the necessary permits from the relevant authorities. To the best of our knowledge, the ERC has never required a power producer to be a solely Thai entity, and the foreign ownership requirement is unprecedented.

On 25 November 2022, the ERC published a new draft of the ERC Regulation re: the Qualifications, Documents and Procedures for Obtaining Electricity Business Licence on its website for the public hearing process (the Draft) from 25 November to 12 December 2022, in which we will also participate.  The Draft also imposes new concepts of the Thai majority-owned qualification of the power producer in Thailand. The details of which are as follows:

• In case the applicant is a private limited company,  foreign shareholders must hold shares in such company not exceeding forty-nine percent of the total shares of such company, and the number of foreign shareholders in such company must not be more than half of all shareholders of the company; 
• At least half of the directors of the applicant company must be a Thai national; and
• The authorised director of the applicant company must be a Thai national; 

(the Foreign Ownership Restrictions).

The above Foreign Ownership Restrictions can be avoided if a power producer has obtained its entitlement under an applicable international treaty or such power producer has been exempted under other laws in Thailand, the criteria for which is still unclear up to this date. The ERC has reserved its comment on this Draft as it is pending the public hearings.  Typically, following the conclusion of the public hearings, the summary and the clarification report of such hearing will be published on the website of the responsible authority.

One point to note is that the power producer must maintain the above qualifications under this Draft at all times, and the Foreign Ownership Restrictions will also apply not only to the new power producer but also to the existing power producer in the market since the Draft aims to extend the restrictions over the renewal process of the energy licence.  As a result, if the Draft becomes effective, the existing power producer in Thailand (which is a foreign-majority owned company) may need to take into account of its shareholding restructure to be a Thai-majority owned company in order to meet the above qualifications for the renewal of the energy licence for the existing project in Thailand.

Following the conclusion of the public hearings, unless there are substantial changes to the concept of such Draft, the Draft may be enacted as is by the ERC as the responsible authority, and it will become effective on the following the date when such Draft has been published on the Royal Gazette.  There is no specific timeline for the enactment process of such Draft as it is subject to ERC’s internal policy for the enactment of the Draft.