In Industrial Thailand, Health and Business Collide

Image by Gilbert R. via Flickr

By THOMAS FULLER

MAP TA PHUT, Thailand — Villagers here avoid walking in the rain because they say it burns their skin and causes their hair to fall out. They have trouble breathing at night when, they say, factories release toxic fumes. And they are terrified by what studies show are unusually high cancer rates.

Map Ta Phut is the heart of Thailand’s industrial underbelly, an area rarely seen by the millions of tourists who visit the country every year. Jutting out into the Gulf of Thailand, the industrial zone is on the scale of a midsize city — only instead of office buildings and apartments, there is block after block of tangled tubes of steel, vats of chemicals and towering, fire-breathing gas flares.

Two years ago, a group of residents decided to take their health grievances to the courts, a relatively rare move in Thailand, where street demonstrations are the preferred form of civil action. The lawsuit, filed by 27 villagers, has become a landmark in Thailand’s environmental movement, leading to a cascade of decisions that halted a staggering $9 billion worth of industrial projects, including Japanese steel factories and German-owned chemical plants.

Image by Carlo Nicora via Flickr

The judgments stunned foreign investors, infuriated powerful Thai companies and jolted an already shaky Thai government. The Thai Chamber of Commerce has warned that if the injunction against dozens of projects is not lifted soon, the entire Thai economy could suffer for the next decade.

But from the perspective of Srisuwan Janya, the lawyer who won the case, the injunction signaled a new dawn in the country’s development and the end of an era in which Thailand’s paramount objective was bolstering gross domestic product.

“From now on industries will not only care about making money,” said Mr. Srisuwan, who comes from a family of rice farmers. “They have to care about the environment and the well-being of the people in the community.”

Even among critics of the court decisions, there is widespread agreement that Map Ta Phut is heavily polluted and unhealthy for those who live nearby. But environmental experts remain skeptical that the court decisions will fix the problem.

The injunction stopped new projects, but older, more polluting facilities were allowed to carry on. The rulings require the government to write a new set of environmental laws. But what Thailand needs, experts say, is not new laws but better enforcement of existing ones.

Image via Wikipedia

“In rural areas, there is almost no enforcement at all,” said Anthony Zola, an American environmental consultant. “Water pollution, air pollution, noise pollution — you can make all the complaints you want and no one pays any attention to you.”

Reports detailing how unhealthy this area is for those who live and work in the shadow of the refineries, plastics factories and other petrochemical facilities here have stacked up over the years.

Thailand’s National Cancer Institute found in 2003 that rates of cervical, bladder, breast, liver, nasal, stomach, throat and blood cancers were highest in Rayong Province, where Map Ta Phut and other industrial zones are located.

A study released in 2007 found that people living near Map Ta Phut had 65 percent higher levels of genetic damage to blood cells than people in the same province who lived in rural areas. Such cell damage, which is a possible precursor to cancer, was 120 percent higher for refinery workers than in residents of rural communities.

Marco Peluso, the lead author of the study, said similar levels of genetic damage might occur in some places in Eastern Europe or developing Asia, but it that would be rare to see these levels in the West.

The main problem appears to be air pollution. The Thai pollution control department reported in September that it had found nine types of carcinogenic compounds in the air around Map Ta Phut.

In March, an initial court decision from the lawsuit by the 27 villagers declared Map Ta Phut a “pollution control zone,” obliging the authorities to measure soil and water quality regularly and to come up with a plan to reduce pollution if it is too high.

But the real sting for companies came in September, when another court ruled in a related lawsuit that 76 projects, most of them under construction, should immediately stop work because they were not in compliance with environmental provisions in the country’s new Constitution. The decision was upheld by a higher court in December for all but 11 of the projects.

Among the companies affected are Bayer, the German pharmaceutical giant; Aditya Birla Chemicals, an Indian conglomerate; BlueScope Steel of Australia; and two dozen companies belonging to PTT, the Thai energy giant.

Lawyers for the companies say the most galling aspect of the injunction was that they could not possibly comply with the law because detailed regulations have yet to be written — a problem that the government acknowledges.

The generals who carried out Thailand’s 2006 military coup promulgated a new Constitution that strengthened environmental law, requiring detailed studies before any project that causes “serious impact” to the environment or people’s health is approved.

But “serious” was never defined, and specific guidelines for companies were never drawn up, partly because government officials have been distracted by Thailand’s continuing political turmoil.

“Right now companies don’t know which way to turn,” said Sivapong Viriyabusaya, a partner at Baker & McKenzie, which is representing companies affected by the injunction. “They want to comply but they cannot because there are no rules.”

Mr. Srisuwan, the lawyer who won the injunction, is unapologetic about the potential economic effects of the decision. “I don’t care about investors,” he said. “I don’t care about losing employment and the economy. I just care that people’s lives will be protected.”

The frustration is echoed by Noi Jaitang, a 70-year-old fruit farmer. Over the past two decades, Mr. Noi says, he has lost six members of his family to cancer. Now his wife has a cancerous tumor below her left eye. In October, Mr. Noi walked barefoot to Bangkok — about 125 miles away — to protest the pollution, which he blames for the deaths in his family.

“It’s not that I want to burn the factories down,” he said. “We just want to be able to live together.”

The government says it is moving as quickly as it can to pass the requisite laws that will allow the injunction to be lifted. But Mr. Srisuwan, the lawyer, calls this lawsuit only the “tip of the iceberg.”

There are another 181 factories in Thailand that are not complying with the new Constitution, including paper, steel and petroleum companies, he says. “I will file lawsuits against all of them.”

Nice Pojanamesbaanstit contributed reporting from Bangkok and Map Ta Phut.

Related articles by Zemanta

• That Tap Water Is Legal but May Be Unhealthy (nytimes.com)
• Unpriced Consequences of Energy Production (jcwinnie.biz)
• Green Diary Rescue & Open Thread: Not-So-Green China (dailykos.com)
• U.S. to Place Limits on Power Plant Water Pollution (usnews.com)
• Indoor plants could save your life (telegraph.co.uk)
• Chinese environmental group wins 2 cases (sfgate.com)

Why Dubai Matters

Image by Getty Images via Daylife

Sure, it will pay a hefty price for its debt woes. But the city-state's open economy has attracted legions of foreign investors and serves as a model for its Gulf neighbors

By Stanley Reed

Dubai — After Dubai announced in late November that the state-controlled investment firm Dubai World was seeking to reschedule payments on some $26 billion of debt, global markets went into a tailspin. While foreign bourses quickly rebounded, local shares have taken a pounding, and the credibility of Dubai's leadership has suffered serious damage. Yet lost in all the drama is the fact that Dubai is an important economic experiment in a strategically vital region. The humiliating debt implosion aside, the emirate remains the most dynamic business hub in the Gulf and has become a model for its neighbors.

In a region of conservative, autocratic countries long chained to the boom-and-bust cycles of the oil industry, Dubai stands out for creating an open economy that has diversified well beyond energy. With nowhere near the oil and gas reserves of other Gulf countries such as Saudi Arabia and Kuwait, it had to. "Dubai shows that if you are part of the global economy, you do well; you don't have to have oil," says David Aaron, director of the RAND Center for Middle East Public Policy in Washington.

There's no denying that the emirate overreached and will pay a hefty price. Dubai led the region in allowing outsiders to own property, opening up its real estate market to foreign investment in 2003, and created a mortgage industry to finance their purchases. But lax rules ushered in wild speculation. With real estate prices rising at a double-digit annual clip, investors made a killing buying apartments with low deposits and quickly flipping them. Then when the credit crunch came, buyers fled and developers saw their cash flow dry up. Hardest hit was Nakheel, a subsidiary of Dubai World that created the iconic palm island real estate development off the coast. It has about $8 billion in debt and $13 billion in other liabilities such as bills from suppliers, Barclays Capital (BCS) reports.

Dubai's leadership has doubtless mishandled the recent turmoil. The emirate's debt problems have been looming for at least a year, but ruler Sheikh Mohammed bin Rashid Al Maktoum has made little progress in coming to grips with the challenge. As recently as October, Dubai raised nearly $2 billion in new money through an Islamic bond issue. Asked about the emirate's ability to pay its debts, Sheikh Mohammed told reporters: "I assure you, we are all right."

Part of the problem is that while Dubai is more open than its neighbors, it's no Jeffersonian democracy. It is dominated by a handful of people, and their decision-making and finances remain opaque. The debt crisis illustrates that. Until recently, no one knew how much debt Dubai had and which state-linked companies it might back in a crunch. Just as murky was the extent to which its wealthier neighbors, chiefly Abu Dhabi, were willing to bail it out. Investors who had assumed the best got spooked when it appeared Dubai couldn't meet its obligations. "To lower the perception of risk, Dubai must become more transparent quickly," says Matthew Vogel, head of emerging markets research at Barclays Capital in London.

Hassle-Free Business Climate

Nonetheless, Dubai remains the region's nimblest competitor. It is a tolerant and comfortable base for anyone seeking a foothold in the Arab world, and today Americans, Europeans, Asians, and Middle Easterners work side-by-side in the senior ranks of its big companies. Salaries are high, and there's no personal income tax. Luxury apartment buildings abound, many of them weekend getaways for residents of neighboring states who flock to Dubai to enjoy lavish restaurants and bars often filled with available young women. Then there's all that famous froth such as the indoor ski slope, the sail-shaped Burj Al Arab hotel on the beachfront, and the world's tallest building, the soon-to-open Burj Dubai.

Beneath all the glitz, though, Dubai has become a place where serious business gets done. While the city-state has just 1.6 million residents and a gross domestic product of $80 billion, it is the business gateway for a region with a $1 trillion economy, millions of eager young consumers, and hundreds of billions of petrodollars to invest. Microsoft (MSFT), General Electric (GE), Cisco Systems (CSCO), and a host of other A-list multinationals have flocked to Dubai because of its open culture, top-notch infrastructure, and hassle-free business climate.

And virtually every leading investment bank is present in the Dubai International Financial Center, a lavish gray-granite complex with ornate fountains built on what was a desolate patch of sand just a few years ago. A big draw is the emerging market for Islamic financial services, which has become a $1 trillion business globally. "Dubai will continue to lay the foundations for sustainable growth," says Michael Geoghegan, group chief executive of HSBC, the leading lender in the United Arab Emirates with $611 million in loans out to Dubai World. "I am confident that Dubai and the U.A.E. will overcome any short-term issues they face."

Model Gulf State

Dubai's homegrown companies have made their mark, too. At the core of debt-plagued Dubai World is a first-class ports operation, and the company has vast real estate holdings and a host of other businesses that span the globe. Emirates, the airline founded by the ruling Maktoum family in 1985 with $10 million in capital, is now among the world's top 10 carriers and a major customer for both Airbus and Boeing (BA). And Dubai-based Abraaj Capital, an independent group owned by local and Saudi investors, has grown into the leading private equity firm investing in the region.

Dubai's success hasn't gone unnoticed in the neighborhood, and nearby states are following its lead. Gas-rich Qatar is promoting its own financial center. Abu Dhabi has announced an $8 billion financial-services joint venture with GE. And it's working hard to transform itself into a higher-end version of Dubai with even fancier hotels and branches of the Louvre and Guggenheim museums. Even hyperconservative Saudi Arabia has taken a leaf from Dubai's book by liberalizing its financial system to draw in Western investment banks such as Morgan Stanley (MS) and Deutsche Bank (DB).

What these countries see in Dubai is a chance to move beyond the petro-economy that has provided their wealth but does little to create jobs. The Gulf region has millions of young, underemployed people who want a better life—and who risk being drawn toward Islamist extremism if they don't get it. Some of the most talented of these have made their way to Dubai, where they find a more meritocratic culture that offers seemingly endless opportunities. "They look at this place as somewhere that allows them to do things that they can't do [at home]," says Tarik Yousef, dean of the Dubai School of Government. "It has been built out of nothing."

Hard Choices

While Dubai's neighbors want to emulate its success, that doesn't mean they won't exact a serious political toll for the recent turmoil. The U.A.E., a federation of seven city-states ruled by hereditary clans, is largely bankrolled by Abu Dhabi, but Dubai is its business center. Sheikh Mo, as Dubai's leader is popularly known, is vice-president and prime minister. Abu Dhabi's ruler, Sheikh Khalifa bin Zayed Al Nahyan, serves as president, and he's unlikely to simply write a check to bail out Dubai. Instead, he will probably force Sheikh Mo to make hard choices about developer Nakheel and other troubled enterprises. Some in Abu Dhabi will even want to see Dubai pay for its profligacy by turning over stakes in major assets. The two sides "will sit down and say this is sustainable, this isn't," says Hashem Montasser, Dubai-based managing director of EFG-Hermes, the leading regional investment bank. "I am sure there will be differences."

Until Dubai cleans up its act, it will be much harder to find the money needed to keep building the new highways, the public transit system, and other big infrastructure projects that have helped give it its edge. Already businesses in the emirate say it's tough to line up bank credit, and that won't ease anytime soon. "We are expecting it to be very difficult for Dubai-based entities to raise money," says Farouk Soussa, a Standard & Poor's (MHP) analyst in Dubai.

Given Sheikh Mo's missteps in the current crisis, he may find himself increasingly under the thumb of his neighbors in Abu Dhabi. It hasn't gone unnoticed that solo portraits of him on billboards in prominent locations across Dubai have been replaced by signs showing both the Dubai leader and Sheikh Khalifa.

Dubai may no longer be allowed to run an independent foreign policy. Sheikh Mo has long kept the city-state close to Iran—and tapped into its capital—while most other Gulf states see the Islamic Republic as one of their greatest enemies. And Abu Dhabi, which worries that the U.A.E. is losing its character due to excessive immigration, may push to tighten up on visas for visitors from Iran, Russia, and elsewhere. "The entire U.A.E. will gravitate toward Abu Dhabi," says Ian Bremmer, president of New York-based risk consultancy Eurasia Group. "That means Dubai will become more conservative socially and politically. Dubai's branding will be toned down."

"Don't Count Dubai Out"

That toned-down branding means the emirate will surely rein in some of its excesses. Although the skyline and palm islands won't disappear, further over-the-top development will likely be put on hold. The city-state has "realized it's no longer about building the world's tallest tower," says Saud Masud, research chief for Swiss bank UBS (UBS). "Now it's about Dubai's legacy and its long-term future." And the crisis could help spur greater transparency—admittedly the weakest part of Dubai's economic model, says David Kirsch, an analyst at Washington-based consultancy PFC Energy. "This will put more pressure on Dubai to tighten up on regulations and improve governance," Kirsch says.

It is also hard to see Dubai losing its role as the region's leading business hub. It's true that Qatar's Doha, Abu Dhabi, and even the Saudi capital, Riyadh, are scoring some successes in attracting banking and other businesses. And with greater access to capital, they'll be able to close the infrastructure gap with Dubai. But few expatriates are going to want to settle in those places, which don't really want lots of foreigners and their unfamiliar ways anyhow.

While Dubai's current problems may be severe, the viability of its economic model remains sound. Demand for business services is down now, but it will surely bounce back once the credit crunch eases. "Don't count Dubai out," says Carlyle Group co-founder David Rubenstein. "It has world-class infrastructure, a high-quality talent pool, and will continue to be an important financial center for decades to come." Singapore, which has served as an inspiration for Dubai, learned from the crash of 1997-1998 and emerged much stronger from it. Dubai, too, now has the opportunity to take lessons from its mistakes and thrive once again.

With Vivian Salama, Arif Sharif, Anthony DiPaola, Jason Kelly, Rochelle Garner, and Jonathan Keehner.

Aceh Growth Diagnostic

This report shows that some investors still perceive Aceh as a risky place to do business, despite being relatively peaceful for almost four years. Security incidents, relatively common in post-conflict environments, deter businesses and individuals from investing in Aceh, robbing the economy of necessary capital and innovation. Other consequences of the conflict, including forms of illegal taxation, also hurt investment. The Government of Aceh is aware that until businesses and people change their perceptions of security in Aceh and feel confident that they can reap the full benefits of their investments, little investment will be forthcoming. As a result, growth in the province will be limited and efforts to reduce poverty less effective. There are other problems affecting Aceh's economy. These include the business environment, access to capital and the quality of infrastructure. This report seeks to show how these different factors affect investment and growth, and provides recommendations on how the Government might prioritize and sequence policy changes to improve the investment climate.

Complete Report Official version of document (may contain signatures, etc)
PDF	77 pages	Official Version	[5.39 mb]
Text		Text Version*
*The text version is uncorrected OCR text and is included solely to benefit users with slow connectivity.

Document Date:	2009/07/01
Document Type:	Policy Note
Report Number:	49568
Volume No:	1 of 1