Efforts to attract foreign investments into Myanmar have remained a challenge for the government as the state is still reeling from the effects of several decades of economic isolation under military rule. The country, which opened itself to foreign investments after Thein Sein assumed the presidency in March 2011 and introduced political and economic reforms, have still not fully addressed foreign investors’ concerns.
While the pace of reforms in Myanmar was slower than anticipated, there were some attempts to bring the country’s energy sector in line with global practices. Electricity prices were raised in January 2012 as part of power sector reforms, while diesel and gasoline prices were indexed to Singapore spot market prices in 2011, the International Energy Agency (IEA) said in its “Southeast Asia Energy Outlook.”
Under-explored Myanmar “has potential for gas production growth if its energy sector attracts needed investment,” the IEA added.
Given Thein Sein government’s commitment to economic growth, Myanmar began to reform its foreign direct investment law in early 2012. This took place around the same time as the United States and the European Union began to ease or suspend economic sanctions imposed against the former military government. Even so, the investment climate in Myanmar is still evolving as the country opens itself to foreign businesses.
“There are uncertainties in regulation, discretion in administration, and implementation may be tough in some cases,” according to Edwin Vanderbruggen and Wai New Tun, Partner and Senior Associate, respectively, at law and tax advisory firm VDB Loi.
RECENT ONSHORE TENDER AWARD
Foreign investors’ interest, albeit without the active participation of major IOCs, were evident in Myanmar's Onshore Blocks Second Bidding Round 2013 in January. It shortlisted 59 firms, including three major IOCs – Eni S.p.A., Exxon Mobil Corporation and Total S.A. Only Eni proceeded to bid for one of the 18 onshore exploration blocks – comprising 15 production sharing contracts (PSC) and 3 improvement petroleum recovery contracts (IPR) – on offer.
In an attempt to boost investors’ confidence in the bidding process, the government removed Minister for Energy U Than Htay and his deputy, U Htin Aung from their posts in a cabinet reshuffle just before the submission deadline of Aug. 23. This followed controversial decisions over the award of exploration licenses and production concessions for deepwater blocks MD-7 and MD-8 earlier this year to PTT Exploration and Production plc. (PTTEP), an idea rejected by Thailand’s Energy Minister Pongsak Ruktapongpisal as quoted in the Thai daily The Nation.
The government awarded 16 of the 18 blocks offered in the tender in mid-October. Eni – the sole major IOC left in the tender – was awarded two blocks. Other foreign companies awarded two blocks included India’s ONGC Videsh Ltd. (OVL), Malaysia’s Petronas Carigali, Canada’s Pacific Energy Hunt Corp., Pakistan’s Petroleum Exploration (PVT) Ltd. and British Virgin Islands-registered MRPL E&P Pte Ltd. In total, 26 foreign companies bid for the onshore blocks, U Pe Zin Tun, director general of the Energy Ministry’s Energy Planning Department told Myanmar Times.
FOCUS SHIFTS TO OFFSHORE BLOCKS
Myanmar closed an Offshore Block Bidding Round 2013 in mid-June for 19 deepwater and 11 shallow water exploration blocks. Foreign energy companies seeking to augment their hydrocarbon resources were expected to participate in the tender as the country, which is under-explored, opens its door wider for foreign investments.
The drive to attract foreign investors in Myanmar’s energy sector is also borne of necessity. The authorities tacitly admitted their lack of expertise in this field. Priority in petroleum exploration and production tenders in Myanmar would be accorded to foreign companies as they have the technology necessary to bring the resources to market quickly, an energy ministry source told the Myanmar Times in early July.
This is especially the case for deepwater blocks, which are technologically complex and costly to develop. The government waived its requirement for foreign companies keen on bidding for deepwater blocks to partner a Myanmar-owned firm, unlike the case for shallow water blocks where local participation is needed.
Of the 11 shallow water blocks on offer, there are three are in the Rakhine Offshore Area and in the Moattama Offshore Area and five in the Tanintharyi Offshore Area. Twelve of the 19 deepwater blocks are located in the Rakhine area, while three are in Moattama and four in Tanintharyi.
In July, the energy ministry pre-qualified in 61 out of 75 firms, including major IOCs, Asian national oil firms as well as independent oil companies, in Myanmar’s offshore bidding round. Of these, only 30 firms submitted bids for the 30 offshore blocks when the deadline closed Nov. 15. The ministry did not release any details on the blocks that received bids, but participants indicated interests in more than one block.
“We don’t know why fewer proposals [were made] for the final part of offshore bidding. It depends on companies. But some worldwide energy giants are in the list of final proposals,” an energy ministry official told The Myanmar Times.
However, industry analysts believed that fewer bidders participated in the licensing round as they were not agreeable to some of the terms laid out in the tender.
“I see two new changes in contract agreements with Myanma Oil & Gas Enterprise [MOGE]. Companies have to pay 10 percent of their annual budget as a deposit, and if they fail, MOGE will keep it. Another regulation requires energy companies to pay tax before being paid by MOGE,” according to U Kyaw Thu, a local energy analyst quoted by The Myanmar Times.
Lower foreign participation in the tender is “not entirely surprising … as Myanmar is relatively new” to the offshore bidding process, Jason Waldie, associate director of Douglas Westwood Pte. Ltd. told Rigzone.
Despite fewer than expected bids, the licensing round did attract the interest of nearly all major IOCs. They include Royal Dutch Shell plc, which is partnering Japan’s Mitsui Oil Exploration Co. Ltd. to bid for three blocks, ExxonMobil Corp., Chevron Corp., Total S.A., Eni S.p.A and Statoil ASA which teamed up with ConocoPhillips Co.
Several national and independent oil and gas companies in the Asia Pacific region also put in bids for the offshore blocks. Petronas Carigali, PTTEP and OVL hoped to further extend their presence in the Myanmar upstream sector after being awarded onshore blocks in October. Other notable firms that are bidding include Woodside Petroleum Ltd. and Santos Ltd. from Australia and Reliance Industries Ltd., Oil India Ltd. and GAIL (India) Ltd. from India.
Chinese companies, which have been actively scouring the globe for energy resources, is noticeably absent from the bidding list. China National Offshore Oil Corp. (CNOOC), Chinese National Petroleum Corp. (CNPC) and China Petroleum & Chemical Corp. (Sinopec) already have upstream operations in Myanmar. So it was a little surprising that CNPC, which pre-qualified for the bid, did not make a submission.
“The Myanmar bidding is very competitive, we are just watching, waiting for better opportunities,” Chen Zhiyong, president of CNOOC Myanmar Limited, told Rigzone.
EYES ON THE TENDER AWARD
Participating firms will find out shortly whether their bids in Myanmar’s offshore licensing round are successful, while industry watchers will assess whether the country managed to attract investments from major foreign energy firms after attempts to improve the business climate.
Given their bids, it appears that major IOCs are keen to tap potential exploration and production opportunities offered by Myanmar. They are likely to take a strategic view of such investments and are expected to “show the [energy] ministry that they are there [to invest] for the long term, Waldie said.
If major IOCs, including Total which already has a presence in Myanmar’s upstream sector, succeed in winning offshore exploration blocks, it will be a “potential win-win [situation] … for [these] operators [as] this will give them first mover advantage … for the government, it will show that the ministry can work with foreign investors,” Waldie added.
While attention may focus on the participation of major IOCs in Myanmar’s upstream sector, existing players Total, PTTEP and Petronas may have an edge over the newcomers in this licensing round.
“Given their experience and the fact that they already have the infrastructure in the country, it is not as hard for them to make a strong bid as it is for any newcomers. This may be a precursor to the offshore tender,” Vanderbruggen and Tun said.
Results of Myanmar’s offshore licensing round will be known in the last week of December or the first week of January, an energy ministry source told Rigzone.
source: Rigzone
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