Myanmar Opens to the World, but has to Change the way they do Business

If the participation of 900 delegates – the largest to date – from around the world, representing governments, business, civil society and academia at the World Economic Forum on East Asia in Naypyidaw from June 5-7 was any indication, then Myanmar has successfully shown that the international community is ready to do business with it. Located strategically between two of the world’s largest economies, holding some of the richest energy and mineral resources and an abundance of cheap labour, Myanmar is theoretically every businessman’s dream.

Since its democratic transition in 2011, countries and their companies have been racing to get a piece of the Burmese pie in order to have a first-mover advantage. Not surprisingly, Myanmar’s energy sector, has elicited the most attention. With reserves assessed between 7.8 trillion cubic feet (tcf), the government’s 2011 bidding round offered 18 onshore blocks, eight of which were awarded to foreign firms, while the January 2013 round, which put up 18 onshore and 30 offshore blocks on offer, have attracted significant interest from international oil companies, including the majors. Another round for 20 more by the end of 2013 has been announced.

However, till recently, Myanmar’s gas was sold only to Thailand, though from July 2013, China too will receive 6.5 tcf of gas for 30 years from its Rakhine blocks, jointly owned by Myanmar, South Korea’s Daewoo and India’s OVL and GAIL following the completion of a pipeline. But if its energy resources are to be the vehicle that will drive its economic prosperity, then Myanmar has to introduce and implement reforms in its energy sector across the board.

With no transparency, accountability or public disclosure of how the revenues accruing from the sale of energy were managed or used, the perception is that they were utilised to prop up the military rule or went into the personal coffers of the junta. For example, Myanmar receives around $1- $2 billion a year from its natural gas exports to Thailand, but these are not reflected in public accounts. As a result, the country remains extremely poor and ironically, suffers from chronic energy shortages. More than 70% of Myanmar’s 60 million people live in villages, with the agriculture sector, albeit down to 36% from 57% in 2001, making up the bulk of the country’s GDP.

Despite the huge gas reserves, the country has an installed generation capacity of 6,300 MW, with a per capita power consumption of 100 units. Only 26% of the population has access to electricity, and though it has more than adequate capacity to deal with peak loads, inadequate infrastructure and supply (from coal power plants and gas pipelines), load shedding of up to 500 MW is experienced.

Moreover, although Myanmar produces 10.2 million tonnes of oil equivalent gas per year, an Accenture-ADB report says that all but 15% of it is sold to Thailand. Even the gas produced by the Daewoo consortium in the Rakhine coast has been sold to China. As a result, biomass accounts for 75% of primary energy supply, almost all of which is derived from fuel wood, followed by gas (10%) and oil (6%). The same is the case with hydropower. According to the Ministry of Electric Power, the country’s hydropower potential has been projected at more than 100,000 MW, but installed capacity is only 2,520 MW.

The lack of development has given vent to domestic opposition. The new government has stated that they will do things differently. Recently, a Chinese-led conglomerate was stopped by landholders and monks from carrying out work on a copper project while Shan guerrillas attacked a Myanmar Oil and Gas Enterprise (MOGE) compound close to the gas pipeline near the China border. In November 2012, after the Wanbao Mining Corporation, a subsidiary of China’s state-owned arms maker, Norinco, had asked for acquiring lands of 26 villages at the base of Letpadaung mountain, faced violent protests, the government established an inquiry led by Aung San Suu Kyi. What is of concern is that the Shwe Gas Movement has pledged to fight for higher compensation for land taken for the Chinese pipelines, and jobs for the people along the pipelines’ route. Although the inquiry allowed the company to continue its work, it ordered the company to pay market prices for the land acquisition as well as compensation for three years of crops.

It is, therefore, clear that the government has realized that it has to change the way it does business. In November 2011, bowing to domestic pressure, the government said it had to “respect the people’s will” and scrapped a $3.6 billion dam project at Myitsone, one of seven planned by China Power Investment. Other foreign companies too have taken cognizance of the changes, while existing ones, namely Chinese and Thai firms are renegotiating their contracts. The government also stated that new discoveries will be used for domestic utilisation first, leaving excess resources for exports.

A beginning has been made. The government has committed to implementing the Extractive Industries Transparency Initiative, a global standard to measure governance and transparency in resource-rich countries, and as was reflected in the joint statement signed during President Thein Sein’s visit to Washington states, “The United States and Myanmar reaffirm their shared objectives to manage their natural resources, including oil and gas, and the revenues they generate, transparently and for the benefit of all their citizens.”

With the advent of global companies into Myanmar, where does that leave China and India? In particular, Chinese companies, which had enjoyed a strong presence thanks to the sanctions making it largely off limits for Western firms, are now facing stiff competition as Myanmar is showing a tendency to turn increasingly to the West for its development. A clear pointer is that in the recent oil and gas bidding round, only one Chinese company, SIPC Myanmar Petroleum Company Ltd, was short-listed out of the fifty-nine.

India has fared better, with seven Indian companies, including OVL, OIL, Gujarat Natural Resources Ltd, Cairn India Ltd, Prize Petroleum Company, Jubilant Energy (Kharsang) and Jubilant Oil and Gas being short listed, along with Australian, Pakistani, Japanese, Canadian, US and Malaysian contenders.6 No one, however, doubts that China will maintain its hold over the country, at least for some time. Nevertheless, it is not taking any chances and had ordered its state-owned companies to adopt corporate social responsibility practices and improve their public relations profile in the country. It has also appointed two veteran diplomats to strengthen bilateral relations.

India too is investing substantially in Myanmar with investments worth $2.6 billion across several sectors, including downstream energy sector, infrastructure and telecom. But it too has come in for criticism particularly for the manner in which it operates. For instance, its $214 million Kaladan Multimodal Transit Transport Project has come for scrutiny from local communities for allegedly forced relocations, land confiscation without adequate compensation, discrimination in hiring workers and destruction of local heritage.

Despite the initial enthusiasm, it may be some time before real changes can be seen in Myanmar and for the country to make the transition from an extractive-driven economy to one where real development can be expected. According to a recent report on transparency from Resource Watch Institute, even Afghanistan is a better place to do business than Myanmar, and although some sanctions had been lifted, it is still too early to say whether the investments are warranted or at least commensurate with the risks involved. Apart from the recent violent clashes that broke out between Buddhists and Muslims, rampant corruption and lack of transparency and accountability in Myanmar, mismanagement is rampant, leading to the dismal development scenario.

Even India, which had proposed the construction of two large hydropower projects in Myanmar’s Chindwin river – the 1,200-MW Htamanthi and the 642-MW Shwezaye hydroelectric plants – has had to back out owing to the prohibitive cost of constructing the projects and the increasing political pressure from indigenous environmental groups. Eventually, however, whether the initial international business interest in Myanmar will be sustained will depend on how quickly it develops its infrastructure, particularly electricity.