Myanmar’s Energy Sector
Author: Erin Murphy
Rich with oil and gas, geothermal, and renewable energy sources, Myanmar’s energy sector has incredible potential that will not only benefit investors, but the Myanmar people as well. Since 2011, offshore and onshore oil and gas blocks have been awarded to major oil and gas companies, and international businesses and financial institutions, including the Asian Development Bank (ADB), have sought power generation opportunities throughout the country. Despite the potential, there are many challenges to be overcome to fully develop this sector. As with other sectors, lack of both human and physical capacity, an opaque and ever-changing legal system, lack of coordination among the multitude of energy-related ministries, and remaining U.S. sanctions hinder entry into the energy market. Even after the necessary capital has been secured, successful projects must develop and execute an appropriate strategy to outreach to all impacted communities. Despite these challenges, Myanmar has tremendous potential in its energy sector and, if developed properly by all involved, it could not only bring much-needed power generation and wealth to its people and investors, but also become a major regional energy hub.
Current State of Investment in the Energy Sector
The expected “gold rush” to capture economic opportunities in Myanmar has not necessarily materialized in the way Myanmar watchers expected. Senior government officials acknowledge that there remain numerous challenges to fostering an investor-friendly business climate, including improvement in regulatory and legal frameworks, human resources and financial capacity, and infrastructure. Foreign investment has been slow, but is still significant. Foreign direct investment (FDI) totaled US$3.6 billion from April to September last year nearly as much as the entire previous fiscal year. The bulk of the investment has been in labor-intensive industries such as manufacturing, construction, and tourism, as well as a growing platform in the telecommunications and financial services sectors. FDI will almost certainly increase this year and next, particularly as major announcements related to oil and gas tenders, solar power projects, and other energy sector investments signal a new influx of business engagement.
The ADB conducted an initial assessment of Myanmar’s energy sector in 2012; this was the first recent effort to ascertain the scope and scale of the sector and begin to collect hard data. The assessment confirmed the state of energy usage and of the industry in the country: Myanmar’s current per capita electricity consumption was-and continues to be-amongst the lowest in Asia. Energy typically is supplied by biomass, such as fuelwood, charcoal, agricultural residue, and animal waste, and estimated electrification rates were at 67% of households in Yangon and 16% in rural areas. The current installed capacity of electricity remains at 3495 megawatts (MW), generated from 20 plants: 19 hydropower plants which generate 2660 MW of installed capacity (76% of Myanmar’s power), and 11 gas and steam plants that provide 835 MW. Energy-related infrastructure, through years of neglect and lack of financing, was found to be dilapidated and needing enormous work. The ADB concluded in part that Myanmar “lacks the capital needed to develop [the sector]” and that it was “essential that strong, enforceable environmental and social safeguards be firmly in place.” 
The government has since made power generation a priority, and is open to foreign investors who can help rebuild the sector. The Myanmar National Electrification Plan aims to achieve 100% electrification by 2030. According to the Ministry of Electric Power (MOEP), full electrification would require that more than 7.2 million households be connected over the next 16 years. Myanmar is working on 17 new power plant projects that are due for completion by 2016, 10 others were completed between 2013 and 2014, and there are plans to construct another 87 power plants that can supply 54,608 MW of installed capacity. President Thein Sein in his monthly radio address, in January stated, “As of 2014, we have managed to provide electricity to 243 townships out of the 398 townships from the national power grid and the remaining 155 townships by other alternative ways… Needless to say, regular supply of electric power is an essential component in developing a country’s economy. Furthermore, electricity is also a crucial infrastructural need for education and healthcare sectors. As such, we have tried to the best of our ability to improve the performance of the electricity sector.”
The government has worked to increase the amount of foreign investment in the power sector. Foreign companies had invested US$13 billion in the power sector as of June 2104, with an additional US$6 billion in the process of receiving approval, according to the Directorate of Investment and Company administration. Multilateral financial institutions such as the World Bank, ADB, and IFC have planned projects or loans for power generation. Foreign investors from Singapore, Thailand, China, the U.S., Japan, the U.K., Norway and other European and Asian countries are working in the energy sector, including in the oil and gas, coal, and hydropower industries.
Myanmar Government Oversight
Several government ministries in Myanmar are responsible for energy matters; however, the ministry of Energy (MOE) has principal authority for overseeing energy policy and coordination. The Ministry of Electric Power, Ministry of Mines, Ministry of Agriculture and Irrigation, Ministry of Science and Technology, Ministry of Environmental Conservation and Forestry, Ministry of Industry, and the Ministry for National Planning and Economic Development all play certain roles in the sector.
There also is an extensive legislative and regulatory regime that governs not only FDI, but work in specific energy industries as well. In addition to the new FDI law, investors must abide by the 1914 Companies Act (currently under revision), several statutes related to labor issues (including protections for the right to assemble and minimum wages that also are under revision), mining laws, and multiple laws governing the oil and gas sector, including the Oilfields Act )1918), the Petroleum Act (1934), the Oilfield Rules (1936), the Petroleum Rules (1937), the Essential Supplies and Services Act (1947), the Oilfields (labor and Welfare) Act (1951), the Petroleum Resources (Development Regulation) Act (1969), and the Environmental Conservation Law (2012). Additionally, Myanmar is working to ensure that its economic development projects adhere to the highest international standards, and the government will require foreign and domestic investors to demonstrate transparency, consider environmental and social impact, and respect corporate social responsibility. In December 2012, President Thein Sein announced that Myanmar sought to join the Extractive Industries Transparency Initiative (EITI), and the country was admitted as an EITI candidate in July 2014. Myanmar’s Participation in EITI requires it to comply with international standards of transparency for all its oil, gas and mining earnings, which can include disclosure of information relating to company ownership, contract terms, state-owned extractive industries and revenue allocation. Foreign investors, particularly those from the U.S., will also have to consider their domestic regulations and any restrictions from their own countries to ensure smooth business engagement.
Energy Sector Potential
Myanmar has a diverse energy sector that offers a multitude of opportunities to international and domestic investors; Myanmar’s most significant potential lies in the oil and gas, hydropower, coal, and solar power industries.
Oil and Gas
Myanmar’s oil and gas industry has perhaps the most potential for the country. It is estimated that Myanmar, one to the world’s oldest oil producers, has up to 3.2 billion barrels of oil and 18 trillion cubic feet (Tcf) of natural gas reserves (with unproven resources potentially expanding that figure). Gas comprises 90% OF TOTAL Myanmar petroleum products, and Myanmar is the 10th largest producer of natural gas in the world. According to the U.S. Energy Information Administration, Myanmar has estimated proven gas reserves of 10 Tcf, and proven oil reserves of 50 million barrels. A report by U.K. Trade & Investment noted that Myanmar’s oil and gas sector received over US$14.3 billion in FDI by the end of the third quarter of the 2014/15 financial year, and currently accounts for about 36.3% of the country’s total foreign investment.
The Myanmar government has taken strides to attract foreign investors and technical assistance, including through legislative and regulatory acts, joining an international transparency governance body, and conducting multiple licensing rounds for onshore and offshore blocks. Since the announcement of the winners of the offshore licenses, two foreign firms have signed production-sharing contracts. The U.K.’s Ophir Energy and the Netherlands’ Shell have negotiated contract terms. Energy industry analysts noted that the negotiations were more complex than anticipated-particularly difficult for a difficult for a government with limited capacity for and experience with the conduct of such complex deals. However, Myanmar’s efforts to bring greater transparency to the sector will provide long-term benefits to foreign investors concerned with government and state-owned enterprise conduct.
Myanmar also has great hydropower potential through its major rivers, which drain the four main basins of Ayeyarwaddy, Chindwin, Thanlwin, and Sittaung Rivers-capacity is estimated to be more than 100,000 MW. Investment in this industry has been at times controversial, however, it offers great potential for both investors and those in need of electrification.
The bulk of investment in this sector has come from China, but other foreign investors are now seeking to engage in this industry. The World Bank Group and the International Hydropower Association (IHA) announced in January 2015 efforts to help Myanmar develop a more sustainable hydropower sector, and hosted a tow-day hydropower workshop to foster knowledge and connections among representatives from government, private sector, and civil society. Efforts such as these will help address reputational concerns; foreign investors likely are aware- and should be aware- of ongoing concerns related to sustainability, environmental, and social impacts on affected villages.
According to the ADB, an estimated 400 coal occurrences have been identified in Myanmar, with significant occurrences in the Ayeyarwaddy and Chindwin river basins and in Shan state. Coal has mainly been found in the Sagaing, Magwe, and Tanintharyi Divisions. Most of Myanmar’s coal resources were formed during the resources were formed during the Tertiary period, and are the most valuable type in terms of quality (lignite to sub-bituminous). Coal found in Shan state tends to be of lower quality (sub-bituminous). The 33 major coal deposits have estimated reserves totaling some 488.7 million tons in various qualities. Only 1% of this estimated potential has been confirmed, however.
Thailand, Singapore, India, and Japan have expressed interest in coal-fired power plants, and some memoranda of understanding have been signed with the Myanmar government. Despite the potential in this sector, Myanmar does have limited coal reserves, and any effort to build out coal-burning power plants to generate electricity would require imported coal. Additionally, lack of electricity would require imported coal. Additionally, lack of electrical grids will hamper delivery of electricity to intended destinations.
Solar energy is a new industry in Myanmar that had previously been untapped due to the expense of the technology and lack of financing. Renewable energy in Myanmar recently has been a focus of NGOs and social enterprises that are looking to bring clean energy sources to villages without power, but are concerned with environmental damage from coal or hydropower-related projects.
In2014, U.S.-based ACO Investment Group announced plans for a US$480 Million solar power project in the Mandalay region that is projected to provide up to 12% of the country’s future power generation. Additionally, the ADB announced last year a plan to bring power to 25 off-gird villages in the country through a US$2 million grant project to expand clean energy use, including through solar power.
There are many opportunities for foreign investors in the Myanmar Energy sector, but those who choose to engage must also be aware of the challenges. Despite the pace of economic reform. The oil and gas industry largely remains a restricted sector. The Myanmar investment Commission issued a directive in August 2014 to expend the sectors that could be 100% held by foreign investors, including small and medium sized hydropower and coal-fired power projects, but did not extend this privilege to the oil and gas sector. Even beyond legal and regulatory hurdles, falling oil prices have dulled excitement for this sector.
Reputational issues can also impact an investor’s decision to enter the Myanmar market. Fears of local protesters, potential JV partners and entire industries plagued by corruption, an opaque legal system, and the possibility that the country could backslide to its military past all temper investor enthusiasm. Investors would be wise to do appropriate outreach to government contacts and conduct in-depth consultations with impacted communities well before any ground breakings.
Finally, U.S. investors in Particular will have to conduct appropriate due diligence to ensure that they do not violate any remaining sanctions. All U.S. investors that engage with the MyanmaOil and Gas Enterprise (MOGE) must notify the U.S. Department of state, and any aggregate investment of US$500,000 or more requires U.S. investors to complete the Department of state Responsible Investment Reporting Requirements. 
Opportunities for International Investors
There are significant opportunities for both foreign and domestic companies to invest in the generation, transmission, and distribution of power. Myanmar’s energy sector needs high quality engagement in hydropower and coal-powered plants, and in the oil and gas industry. Aside from the tenders and licenses offered by the Myanmar government, and requests for joint venture partnerships, there are other opportunities in the energy sector to consider:
Infrastructure and equipment: Lack of upkeep and financing has left infrastructure in this sector dilapidated or non-existent. Rehabilitating or building roads, pipelines, and other infrastructure would help develop this sector.
Technical assistance and capacity building: Myanmar’s government and its population strongly desire an energy sector that adheres to international standards. Government officials, managers, and laborers need training to be able to draft appropriate legislation, comprehend complex production sharing agreements and contracts, build a physical and corporate infrastructure that complies with international and domestic regulations, and provide workers with necessary skills.
Environmental and social impact assessment consultancy services: Too often, communities discover major investment projects in their villages when the bulldozers arrive. Conducting in-depth studies on the environmental and social impact of projects could mitigate potential social issues and alleviate concerns about environmental degradation.
Myanmar’s energy sector is full of potential for foreign investors. This sector has an array of opportunities, including in oil and gas, renewable energy, and coal industries. Businesses could take advantage of undertaking sector assessment, assisting in building the associated and necessary physical and regulatory infrastructure, and helping to develop the most lucrative of Myanmar’s sectors. If investors take care to adhere local and international laws and regulations, respect impacted communities, and be fully aware of the challenges of investing in Southeast Asia’s newest economic tiger, the development of Myanmar’s energy sector could transform the country.