A private military is the only way to show these governments you mean business. Without one they will just continue to walk over anyone attempting to break away from their control.
He apparently did something similar to just this:
If your not protected by any country can't a group of pirates just overtake your seastead and there is nothing you can do about it.
That's the thing. We have no country preventing us from doing something about it. Pirates thrive due to merchant ships not being allowed to have guns.
We have guns. With more (bigger ones) coming.
I don't particularly think this is a good idea, and this may have been why the Thai government feels threatened. A "private" military originating out of a Seastead community is not going to win any kind of armed conflict with the Thailand military, that is very modest compared to most other countries.
Having sufficient weapons to defend against pirates is acceptable. But I think having weapons that approaches something that resembles any kind of military is probably not going to end well for you.
I don't know how many weapons Elwar had, or if this was even why the Thai government doesn't like what he is doing, but in any case, I don't think his intention was to harm the Thai government, and I don't think any kind of jailing is appropriate for what he did, and the death penalty is most certainly not appropriate.