April 28, 2000	atimes.com

Editorials Kra Canal: Mega-projects anyone? It was not one of the better nights in the (Bangkok) Foreign Correspondents Club of Thailand. A pro-con debate on the Kra Canal project, the idea of digging a major sea-level canal through peninsular southern Thailand to bypass the Malacca Strait, had been scheduled. Judging from the size of the audience, interest in the controversial US$20 billion project seems substantial. The more regrettable that the quality of the debate, to put it mildly, didn't come close to expectations. Proponents of the canal project - a Thai businessman who had participated in a recent re-study of its feasibility and a representative of Japan's Global Infrastructure Fund research group - made a credible case for pushing the project forward. Unfortunately, the con-side, a high-ranking bureaucrat of the Thai Ministry of Communications and Transport and a professor of maritime studies at Bangkok's Chulalongkorn University, never came close to putting the ideas of the project proponents to a serious test. The bureaucrat's project critique - to the extent it was comprehensible at all - seemed largely beside the point; the professor's was puerile and banal to such a degree that a colleague of ours expressed his astonishment that a person producing such ''junior high school'' stuff could be a professor at a respected university. But let that be. We'll live down the disappointment. The issue we find worth addressing is whether in a period in economic history when all the talk (and rage) is the Internet and its economic promise and potential, there remains room and reason to consider investment in large-scale physical infrastructure to facilitate business and commerce beyond the telecommunications links on everyone's mind. Clearly, the answer is Yes. Indeed, to the extent that substantial investment - public or private - in transportation and energy infrastructure has taken a back-seat over the past decade, serious bottlenecks are likely to develop in both fields and could undermine or hamper the impact of information technology. Try as you may, the products bought and sold in e-commerce transactions cannot (not as yet, anyway) be conveyed electronically from seller to buyer - even if payments can. Similarly, sufficient energy available at a reasonable price is a crucial ingredient in economic development. The impact of recent Opec oil price gouging demonstrates the point. But the Eurotunnel, connecting England to the European continent, is the only large strategic transportation infrastructure project put into operation in the past decade. Numerous long-planned projects of similar scope and strategic significance - a bridge across the Gibraltar Strait connecting Africa and Europe, a second (sea-level) Panama canal accommodating larger vessels than the 60,000 dwt class that can transit the present waterway, a dam across the Bering Strait connecting Siberia and Alaska, high-speed rail links in China and from Western to Eastern Europe and from there to Asia, and the Kra Canal referenced above - remain on hold. On hold as well or progressing at a snail's pace are energy development projects - whether thermonuclear fusion or solar energy - that could provide long-term alternatives to fossil fuels. The problem is that such mega-projects running into the tens of billions of dollars generally show no fast return on investment and in and of themselves have very low financial internal rates of return. But as public financing in an age of privatization of infrastructure has become anathema and the notion that infrastructure, like any other investment project, must pay for itself has become dogma, infrastructure development languishes. This is short-sighted and will have serious negative economic consequences, especially for countries and regions now lacking in transportation links and energy resources to support their development. It's also just plain stupid. America built railroads to connect its populous and industrializing east coast to its underpopulated, undeveloped interior and west. Who knows if the railroads as such ever paid for themselves - and who cares. What mattered to the developing nation is the vast industrial development and economic return on the railroad investment that built the modern America. As with the American railroads, so it is with the Kra Canal. As an alternate shipping lane to the Malacca, Sunda, and Lombok straits, it can collect tolls as a percentage of time (and money) savings by ship operators who may also prefer its relative safety, especially over the increasingly congested Malacca Strait. Revenues will be substantial, but even on the most optimistic assumptions on trade development, the canal's financial rate of return will not approach the 15 percent or so investors demand. But add to that transshipment port facilities at both canal ends and extensive industrial development zones and the project will undoubtedly justify itself. And for Thailand it will have the added advantage of creating an alternative center of industrial development to the congested Bangkok metropolitan region. Will the canal be built? It's ultimately a political question the Thai people must decide in the interest of their own national development goals. But there is little doubt as to its ultimate merit - not merely for Thailand but the East Asian region, which would receive a major new development push and incentives as a result. And judging from the renewed interest in the project in the aftermath of the Asian crisis and as new development impulses are at a premium, chances appear good that the long discussed canal concept may at least now move toward serious study of the conditions for its realization.

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