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.1
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.2
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.3
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.4
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.5
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.7
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.8
Eventually, however, whether the initial international business
interest in Myanmar will be sustained will depend on how quickly it
develops its infrastructure, particularly electricity.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
source: IDSA
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