Monday, September 09, 2019
High Speed Rail: Where Thai Shipping Lanes Intersect With Railroads
By Wirot Poonsuwan
The contractor must use Thai ships in transporting its goods and equipment, such as large, heavy and odd-sized steel rails and equipment for making tunnels, from a foreign country to Thailand on routes where Thai ships operate and have the capability to transport those goods and equipment. The contractor must also notify the Marine Department in writing of the import in advance within seven days after the contractor orders or purchases the goods from abroad.
These are bidding conditions for various sections of the 253-kilometer Thai-Chinese northeastern high-speed rail running from Bangkok to Nakhon Ratchasima which are adapted from the provisions of the Merchant Marine Promotion Act and are likely to be incorporated into the construction contract that the winning bidder must sign.
Merchant Marine Promotion Act of 1978–Trying to Find a Capable Thai Ship Can Be a Challenge
It can take 2-4 months from the date you try to find Thai ships to transport your heavy and odd-sized goods to the date you obtain a permission from the Ministry of Transport and the Marine Department to use a foreign ship when suitable Thai ships cannot be found.
Assuming finding a Thai ship is a problem, you must file an application with the Marine Department to use a specified foreign ship instead. The Marine Department will then forward the matter to be approved by the Ministry of Transport. After the Ministry of Transport’s approval, the Marine Department will then issue permission for you to use the foreign ship. Between the Marine Department and the Ministry of Transport, they are quite efficient to complete the approval process within two weeks in the 4-month time frame above.
Complying with the Merchant Marine Act is no easy task. The contractor will likely face a dilemma of having to find fitting Thai ships, as there are only a limited number of Thai fleets available—or not at all—while time under the project schedule is running out.
Thai Ships Act of 1938, Ministry of Transport Approval
In order to use a foreign ship, you submit only one application to the Marine Department and the department will seek approval from the Ministry of Transport on your behalf. The reason why the Ministry of Transport has to get involved is because of The Thai Ships Act of 1938 which requires that only Thai nationals or Thai companies can own registered Thai ships and that only Thai ships can conduct trade in Thai waters.
Thai companies are defined under the Thai Ships Act as companies incorporated in Thailand with no less than half the number of its directors are Thai nationals and at least 70% of shares are held by Thai nationals or other Thai companies.
However, if the Minister of Transport sees that there are not enough Thai ships to serve the needs of the country in any parts of Thai waters, he has the power to grant permission to a foreign ship to conduct business in Thai waters for a renewable period of one year.
This Ministry of Transport permission therefore has to be obtained first, before a connected approval of the Marine Department is granted under the Merchant Marine Promotion Act for you to be able to hire a foreign ship.
Marine Department Regulation
Under a regulation of the Marine Department issued under the Merchant Marine Promotion Act, you must demonstrate that you have exhausted your effort and resources to try to find Thai ships by putting up announcements in three local newspapers, each for three days, to advertise for Thai ships to transport your heavy and over-dimensioned goods or to serve as a bridge in the slipway between a larger barge carrying the heavy and over-dimensioned cargo and the landing site on land.
The announcements must specify the quality of the ships required, for example the width must not exceed 14 meters to fit into the slipway, depth of 4 meters and weight of 500 tons gross, with valid ship paperwork including a certificate for safety of life at sea.
The Thai ships association will need to be contacted to make sure they are aware of the newspaper announcements.
Contractor’s Financial Risk
There is a regulatory wait period of 15 days after the last day of the newspaper announcements that you have to give to Thai ship owners to respond to the newspaper ads. If no Thai ships are interested or qualified, then you can start applying for the use of a foreign ship.
There are cases where the contractor starts the search process too late and rushes to meet the project schedule and is forced to mobilize a foreign ship from a foreign country before permission from the Thai authorities is received, inevitably bearing expensive daily costs of this early engagement. The contractor’s financial risk will materialize if the Thai permission is denied or delayed.
In case a Thai ship owner responds to your newspaper ads, but they are not completely qualified. You might need to allow them to modify their ship to meet the qualifications. Time lost for inspection by a third party, certification and paperwork should be anticipated.
No doubt, if the local ship takes too long to modify, poses potential danger or cannot meet the required qualifications in due course, you’re free to switch to a foreign alternative.
Copy of Construction Contract to be Filed
In filing an application for permission to use a foreign ship with the Marine Department, you will be required to submit a copy of the construction contract with the government project-owner.
The application must mention the fact that you have complied with the newspaper ad requirement and there is no response from a qualified Thai ship owner.
It must likewise state the name of the foreign ship, its nationality, its nature as a steel barge, its width, depth, double-hull, tons-gross size, with pictures attached, the qualifications advertised for in the newspaper ads.
Penalty for Breach–Dire Consequences
Using a foreign ship without proper authorization can lead to a penalty of twice the freight cost you pay to the foreign ship. The failure is also a light criminal offense under the Merchant Marine Act, a mild one-time fine of 10,000 baht (USD323) and a daily fine of 2,000 baht (USD65) as long as the breach continues.
Even though the regulatory penalty is light in dollar terms, the contractor will be seen as having violated Thai law leading to trouble and possible breach of the construction contract.
Besides, the repetition of the law in the construction contract gives rise to the employer’s right to demand a substantial daily fine of 0.1% of the contract value every day of the breach until the breach is rectified or until the breach is over. Namely, the day the contractor allegedly loaded the goods onto the foreign ship, without the Thai government authorization, until the foreign ship reaches its destination in Thailand.
For illustration, to quantify the level of the fine, if the duration of that default period lasts 20 days, the total fine for that breach will be 20 times 0.1% of the contract value. On the contract value of 10 billion baht, this is a humongous daily penalty of 10 million baht, totaling 200 million baht (USD6.5 million) for an unauthorized use of a foreign ship!
New Trend: Thai Ship Requirement Linked to Issuing Take-Over Certificate
A modern day government construction contract sometimes sees the government project-owner expanding the Thai ship requirement in the contract far beyond what the law requires.
Some of these contracts bluntly say transportation by Thai ships is required, regardless of the routes and of the ships’ capability. And even though the work, which is the gist of the contract, is complete, the government project-owner has the right not to issue a take-over certificate if the contractor has not complied with the Thai ship requirement in the contract.
This latest trend can be viewed as arbitrary and should be resisted by the contractor when it has enough leverage to do so. It is a contractual preference by the project-owner and is not a requirement of law.
Wirot Poonsuwan is Senior Counsel and Head of Special Projects at Bangkok law firm Blumenthal Richter & Sumet and can be contacted at email@example.com.