SPOTLIGHT ON MYANMAR
15 Feb 2017
Spotlight on Myanmar energy initiatives: opportunities in the power and LNG sectors
Ongoing initiatives by the Myanmar government to encourage energy projects in the country will be keenly watched as domestic energy needs are expected to continue to rise through 2017, said a panel of industry experts speaking at a Myanmar energy briefing hosted by Ashurst in Singapore on Friday, 10 February 2017.
The role of the Myanmar government in future energy projects, particularly in relation to the overall government policy (including electricity subsidies and tax on LNG imports), offtake commitments, and provision of government guarantees will be key factors in attracting private foreign investment and international commercial lenders to such projects, they also said.
Furthermore, the clear need for domestic energy does not necessarily mean that liquefied natural gas (LNG) imports are required beyond the short or medium term as a result of a number of uncertainties underpinning the role of LNG imports in Myanmar, some panellists cautioned.
Set out below is an overview of some of the key topics considered by the panel.
Potential role for private investors in electricity generation and transmission, and fuel importation
The potential opening up of the Myanmar electricity generation and distribution sectors to more private developers was a recurring topic of interest amongst the panel speakers. In particular, one panellist commented that a strategic policy shift by the Ministry of Electricity and Energy (MOEE) was imminent, and would likely involve several of the following:
- decentralisation of decision making from the central government to the various regional governments (as reflected by a recent initiative of the Yangon Regional Government to draw a master plan which would allow local and foreign investors to have a stake in the energy and electricity sector in Yangon);
- shifting from a single state-owned enterprise offtaker for electricity (i.e., Electric Power Generation Enterprise (EPGE)) to a multi-offtaker model where private companies, including foreign owned companies, may buy and distribute electricity;
- more electricity generation by independent power projects (IPPs) to supplement electricity generation undertaken by the Myanmar government through EPGE and the Department of Hydropower Implementation (DHPI);
- allowing private sector investment in the development and operation of electricity transmission lines for the first time; and
- allowing privately owned companies to independently import and distribute fuel for power generation in the medium term (i.e., without needing to enter into a joint venture with the Myanmar government).
Potential electricity tariff restructuring
Reform of the electricity tariff structure will be crucial for encouraging new investments into the energy sector, one speaker stressed. Electricity tariffs in Myanmar currently range from $0.025/kWh to $0.111/kWh but are structured such that commercial consumers seldom pay the higher tariffs in that range – thereby adding a burden on the government, who currently subsidises around 50% of the retail electricity tariff price.
The panel also considered some of the possible tariff restructuring measures that could be adopted in the near future, with particular focus on the potential for splitting of tariffs into "small commercial" and "large commercial" for the commercial / industrial sectors, and "normal residential" and "premium residential" for homes. If structured properly, this could allow electricity sellers to capture a higher tariff from less price sensitive customers and support new investment into power generation.
Government Guarantees relating to power projects, and other key project financing considerations
The panel also considered the types of guarantees which the Myanmar government may be requested to provide (for loans as well as offtake obligations), particularly where the development of an energy project is to be project financed by international banks. A number of speakers discussed whether the type of government guarantees recently made available by MOEE for EPGE's offtake obligations in relation to the Myingyan IPP project would continue to be available for future power projects in light of the Public Debt Management Law of 2016 ("PDML"). It has been suggested that a key impact of the PDML is that only the Ministry of Planning and Finance (MOPF) (i.e. not MOEE) can issue a government guarantee, however the wording of the PDML is somewhat open to interpretation and some market participants are unsure whether this is only intended to apply to guarantees related to loan repayment obligations, and not offtake commitments, one speaker explained. As such, it would be helpful if a regulation setting out the application of the PDML is issued for investors to have a clear basis upon which government guarantees can be provided, the speaker added.
LNG import opportunities and development of regasification / FSRU projects
The panel provided a brief update on the ongoing Myanmar LNG Business EOI (the "LNG EOI") which reportedly attracted in the region of 100 submissions in late 2016. The panel considered what might be the next steps by MOEE (reportedly advised by the International Finance Corporation), including a potential pre-qualification process and/or subsequent issuance of a request for proposal (RFP) as early as April 2017.
However, the panel observed that there is still considerable uncertainty surrounding the LNG EOI at this time, including the term of the project, the project site, the scale of the project, the various potential project structures and roles of the government, as well as responsibility for development of the necessary related gas pipeline infrastructure.
One of the interesting points highlighted by a panellist is that Myanmar's position as a potential LNG importer is unique given that the majority of domestic natural gas production is already being exported (in this case, to Thailand and China) and that there is significant potential in terms of new domestic natural gas production from upstream blocks which are currently being explored and appraised. Nevertheless, the panel recognised that there would likely still be a mismatch between demand and supply for natural gas in a short-and-medium term which LNG could fill as a solution – particularly given the Myanmar government's increased emphasis on natural gas as the primary generation source of electricity vis-a-vis coal and hydro on social and environmental grounds.
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Co-author: Ray Aye, Legal Manager.
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