Infrastructure upgrades in Myanmar aim to cover gaps in energy sector

 

With massive infrastructure upgrades in the works and industrial demand rapidly expanding, the energy market in Myanmar is currently one of the more promising ones in the world. The country is in great need of electricity generation capacity and must completely overhaul its transmission and distribution systems. A raft of investment opportunities are available throughout the energy value chain, and will be for decades to come. Globally, Myanmar is an outlier: as other countries slow or cut back on energy investment due to low oil prices and weak economic growth, the nation is ramping up its commitment and inviting the world to participate.

Powerful Potential

In closing its energy gap, Myanmar has significant domestic resources available. The annual potential of hydropower is 108,000 MW of capacity and wind is 4032 MW per year, while the potential annual output of solar is 51,973 TWh (terawatt hours). The country also has an estimated 130m barrels of oil and 10.3trn cu ft of natural gas. In theory, it could power itself using alternative energy alone. “Most of the baseload can be supplied by hydropower, with top-up by solar and wind,” said Andre Wheeler, CEO of Asia Pacific Connex.

The exact path forward is uncertain, however, and is by no means straight and clear. While most participants agree on the numbers and direction, the country is still debating its desired energy mix. It is a challenging conversation that brings together experts, donors and now individuals affected by the new energy capacity being introduced. Yet given the substantial need for power, the government’s positive stance toward liberalisation and the energy assets available, large-scale transactions are being and will continue to be completed.

On The Rise

Myanmar has a sizeable and growing installed power generation base. Since reforms began in earnest after 2010, total generation capacity went from 3413 MW in FY 2010/11 to 5235 MW in 2015/16. Key metrics have ticked up steadily over time. The electrification ratio has increased from 16% in 2006 to approximately one-third now; per capita consumption soared in the five years to 2015/16, from 108 KWh to 263. The country’s base of installed, operating capacity, meanwhile, is diverse and robust, with a total of 26 hydropower plants, 27 gas-fired plants and one large-scale coal plant.

National Plan

Myanmar is actively working to build out the sector. It has introduced an ambitious programme for expanding its infrastructure, one that promises to make up for existing shortfalls and meet its needs. The National Electrification Plan (NEP), developed in cooperation with the World Bank and the UN, establishes benchmarks for progress towards full electrification: 50% access by 2020, 75% by 2025 and 100% by 2030 (with one-fifth of power coming from renewables).

An estimated 20 GW of generation capacity is to be added, which is equivalent to 175,200 TWh per year, at 100% capability utilisation. To achieve this, an estimated 50-100 power projects will have to be developed. It promises to be one of the most dramatic energy transformations ever, with the percentages set to match the exponential capacity expansion in China over the past 15 years.

The extension of the grid is a major priority and will be the focus of early efforts, as the transmission system is inadequate: under capacity, poorly maintained and limited in terms of coverage. Existing medium-volt infrastructure will be expanded and 20,000 km of new low-voltage lines will be added. The scheme will also add local connections and public lights. In the years leading up to 2020, around 1.7m connections will be introduced at a cost of $700m. That will be followed by the connection of 7.2m households to the grid and investment of $6bn.

The NEP’s total cost is significant. According to the World Bank, to meet the generation goals outlined, an estimated $20bn will be spent and another $10bn might be needed for expansion.

In terms of the energy mix, the 900-page Myanmar Energy Master Plan, introduced in 2016 by Myanmar’s National Energy Management Committee (NEMC), calls for a dramatic adjustment in use of energy sources. The focus in capacity will gradually shift as the country ramps up generation and introduces new technologies. One aspect of the plan will involve hydropower dropping from 70% of the total energy mix to 57% by 2030 and natural gas from 28% to 8%. Coal, meanwhile, will increase its share from 2% to 30%, with solar rising from 0% to 5%.

The report also calls for the establishment of legal and regulatory frameworks for the administration of the sector, the active engagement of civil society and environmental groups and the sharing of benefits from energy development with residents near the infrastructure being constructed.

International Support

Myanmar is receiving significant international support for its energy plans. In September 2015 the World Bank committed $400m, in the form of a 32-year, interest-free loan, to assist the country in achieving the goals of the NEP. Of the total, $310m will go towards the expansion of the transmission network and another $90m will go to the Ministry of Livestock, Fishery and Rural Development. The programme will invest in both on-grid solutions and developing off-grid capacity.

In addition to the World Bank, other international organisations will be aiding in the expansion, including the Asian Development Bank (ADB), the Japan International Cooperation Agency (JICA), the state-owned German development bank KfW and the German international development company GIZ, which is also owned by the state.

Yangon Electricity Supply Corporation (YESC), a state-owned entity that distributes power in the city, is working to transform itself into a stand-alone commercial enterprise. The corporatisation of the Yangon Electricity Supply Board into the YESC – and the Mandalay Electricity Supply Board into the Mandalay Electricity Supply Corporation – was undertaken in July 2015. The idea is that, as independent entities with their own legal infrastructure, they will be able to raise funds for investment, increase efficiency and reduce waste. The YESC had been self-funding since 2006, but the structure was ineffective and required support from the government from 2011, according to the Myanmar Times.

Japan, a major partner in the development of Myanmar’s energy sector since the 1990s, is upping its cooperation. It has been supplying JPY4.2bn ($38m) of official development assistance for electricity in a programme running from 2014 through to 2017. As part of this, in November 2016 it announced a comprehensive $7.7bn assistance package for Myanmar that includes funds supporting electricity projects.

Regionally, Myanmar is part of longer-term plans for connectivity, with ASEAN discussing the development of an association-wide grid. The grouping hopes to balance strengths and weaknesses of the various markets in member states through the efficient exchange of electricity. Some countries have power needs while others, such as Laos, have significant surpluses. In late 2016, it was reported that Myanmar would be the fifth country to join the regional cooperation group, following Laos, Thailand, Malaysia and Singapore.

Legal Reforms Roll Out

Until recently, the energy sector was underpinned by a series of outdated laws which were crafted for colonial administration and later for centralised control. They were: the Electricity Act, enacted 1948 and amended 1967; the Myanmar Electricity Law, enacted in 1984; the Electricity Rules, enacted in 1985; the Petroleum Act, enacted in 1934; and the Petroleum Rules, enacted in 1937, amended in 1946. The Myanmar Electricity Law, enacted in late 2014 to replace the 1984 law, changed the framework for regulating the sector.

Designed with help from international partners, the law encourages investment in electricity and allows for foreign participation in generation, though projects under 10 MW have technically been restricted under the Foreign Investment Law of 2012 and are therefore required to be structured as joint ventures. The Electricity Regulatory Commission, which was created under the law, manages the sector and monitors anti-competitive behaviour. The commission has the power to set prices if it determines that competition is being impaired.

Structural Changes

Structural reforms have also been undertaken in order to make the management of the sector more efficient and effective. The Ministry of Electric Power No. 1 and Ministry of Electric Power No. 2, which was created from a division of the Ministry of Electric Power in 2006, were themselves merged into the Ministry of Electric Power (MOEP) in 2012. The NEMC and the Energy Development Committee were formed in 2013.

In early 2016, the Ministry of Electric Power and the Ministry of Energy were merged – into a Ministry of Electricity and Energy (MoEE) – as part of the new government’s efforts to consolidate the bureaucracy. According to local press reports, the combination will mean very little in terms of operations, though a new division will be created that will run along the lines of the Myanmar Oil and Gas Enterprise’s former Energy Planning Department. The significance is more one of focus and commitment. Overall, the new ministry will be a major force in the country and be responsible for driving the increase in energy output. It will help make sector-wide policy more effective as the country works to meet its energy needs.

More In The Works

According to the Myanmar Times, the country introduced 10 private gas-fired power plants since 2011 as investors committed funds to the sector. Almost 1 GW of power has been added to the grid by these plants.

In the Yangon area, a 50-MW project at Thaketa has been operational since 2013, while the first phase of the Hlawga power plant, a 2x25-MW project, went operational in July 2013. The Ywarma power plant, 52 MW and gas-fired, has been on-line since 2014. A 121-MW plant at Ahlone, built by Toyo Thai on a 30-year build-operate-transfer basis, became partially operational by 2014.

The Kyaukse power plant, originally rolled out at 82 MW, was commissioned in 2014 within two months. The following year, an additional 20 MW was added. In 2016 the contract, originally set for 18 months, was extended for another year. In March 2015, Hong Kong’s VP ower Group started delivering 45 MW to the grid at Kyaukphyu, with the project up and running in just four months.

Another plant, a 230-MW gas and biomass facility at Mawlamyine in Mon State, was connected to the grid in early 2016. In early 2016 a 50-MW plant was opened at the Thilawa Special Economic Zone (SEZ), the agreement to build the plant having been signed in early 2015. Concessionary financing came from JICA while Sumitomo Corp, also a shareholder in Thilawa, was a participant. Gas for the plant will be supplied from the Zawtika field.

VP ower is working on a 133-MW facility at Myingyan, while construction on another Thaketa plant started in early 2016. Located 16 km from the Thilawa SEZ, it will be gas-fired and have a capacity of 106 MW. Actual production is scheduled to start in 2018, although this is subject to change. The current plan is for the Chinese partner to run the project for 30 years, with gas supplied by the Zawtika field. Slated ultimately for 500 MW, the Thaketa plant, when activated, could be the largest power plant in Myanmar and the fifth privately-run plant in Yangon.

Another facility, with maximum output of 250 MW, is also on the boards for Thilawa, the tender having opened in late 2015. To qualify, bidders were required to post a $5m bond and have more than $1bn in cash flow for the past five years. Unlike the 50-MW project, the new Thilawa project will not come with a dedicated fuel connection. The winners of the tender are responsible for sourcing their own supply. A plant at Thaton Township in Mon State is also set to be upgraded, more than doubling capacity from 40 MW to 106 MW. Funding for the project is being provided by the World Bank. Additionally, a 400-MW gas-fired plant is being built at Thanlyin Township in Yangon. The development is being led by Japan’s Marubeni Corp, a trading company.

Stage Of Development

In all, some 81 projects are currently in the works, according to an early 2016 report by the MoEE. They are at various stages: seven are under joint venture agreements (six hydropower and one gas turbine), 28 are under memoranda of agreement (12 hydropower, one wind, two solar, eight gas turbine and five coal), and 46 are in the memorandum of understanding (MoU) stage (26 hydro, four wind, three solar, six gas turbine and seven coal). The MoEE added in late 2016 that it plans to see eight additional combined-cycle power plants built with a total capacity of 2931 MW. The projects are expected to be undertaken by the government in partnership with private companies.

Barging In

Due to the urgent need for power, the government has started to accept the necessity of instituting stop-gap measures that will supply power quickly to where it is most in demand. Blackouts in the country’s major urban centres and the lack of stable power at the industrial areas threaten to delay economic growth and have compelled the government to take immediate measures. The situation in Yangon is especially urgent. Total energy usage in downtown area of the city was estimated in 2016 to be 1250 MW, up almost 20% on 2015.

One solution is to use power barges to supply generation capacity without the need for construction. Two are already being deployed. One barge is being sent to Yangon and will be operational by 2017. Under contract with Myanmar Electric Power Generation Enterprise, the vessel, which will be located near the Thilawa SEZ, will supply 300 MW of power under a five-year contract at $0.11 per kWh.

Another power generation barge contract, for a vessel also rated at 300 MW, was awarded to a consortium with the following members: National Infrastructure Holdings, MCM Pacific, APR Energy and the ACE Resources Group. APR Energy was the first company from the US to be involved in power generation in the country since the lifting of the sanctions, through its involvement in the 102-MW Kyaukse project. The Ministry of Electricity and Energy (MoEE) published the tender for the project in July 2016.

The Myingan Factor

The agreement to build the 225-MW Myingyan power project in the Mandalay division was reached in early 2015, with construction beginning later that year. When completed in 2018, the facility is expected to be the largest gas-fired power plant in the country. The deal – although it took more than two and a half years to transact – is seen as the benchmark for Myanmar, as it was awarded using an open tender process that could possibly become a template for future tendered transactions. International participation in the $300m deal was significant, with the IFC advising the government and the IFC, the ADB and China’s Asian Infrastructure Development Bank (AIIB) providing the funding. Singapore-based Sembcorp will own 80% of the project, with the rest of the equity held locally.

The Myingan power purchase agreement (PPA), which will run for 22 years, was signed in March 2016. The agreement is significant, in that it was the first PPA resulting from a competitively-awarded independent power project (IPP) and was developed according to international best practices. The ADB reviewed the PPA with the assistance of international advisers, such as Allen & Overy.

Properly structured IPPs and PPAs are vital if the country is to meet its anticipated energy needs, as private sector participation is absolutely necessary. While international financial institutions and the government will play major roles in financing, a commercial element is required if sufficient funds are to be raised. The country will need $2.5bn a year to build out generation capacity and transmission assets. It is also important to have the private sector lead, and in the cases involving joint-venture models and where the significantly longer transaction time allows a transparent and competitive bidding process may result in lower costs for the country.

A Long Way To Go

Despite the progress that has been made thus far, the country has a long way to go. Because only one-third of the country is electrified, the vast majority of people in Myanmar have no access to the grid, while in some places the rate of access is exceedingly low. For example, in 2013 – the last year for which national data is available – in Yangon, the rate of access to some level of electricity was 78%, while in Kayah it was 46%, Mandalay 40%, Naypyidaw 39%, Kachin 28%, Ayeyarwady 11%, Tanintharyi 9% and Kayin 6%. The overall rural electrification rate is 16%. The nation’s electricity use has been among the lowest in the world. At 160 KWh per year in 2014, annual per capita consumption was 5% of the world average, though by 2015/16 it had risen to 263 KWh – about one tenth of the consumption in the UK.

Where there is power, the set-up is far from ideal. The distribution grid is weak, the network outdated and in need of upgrading and repair. Transmission loss, and theft, while down from rates hit in the mid1990s, is still three times that in Thailand and almost three times that in Vietnam. Electricity, especially in rural areas, is often supplied by diesel power generators, which produce energy at three to 10 times the cost of other, larger-scale solutions.

In Myanmar it is the poorest people that pay the highest price for electricity. The country overall is highly dependent on basic sources, the vast majority of cooking and lighting energy being provided by traditional charcoal, animal dung, other biomass and candles. Even in areas with high rates of electrification, significant problems still remain. For a number of years, the country’s primary commercial centre – Yangon – has faced repeated blackouts resulting from the limitations of infrastructure within the energy distribution network.

Top Priority

The government has been quick to take action. Because of the threat of blackouts, restoring stability to the system was a part of the administration’s first 100-day plan. Top priority was placed on taking the steps necessary to improve supply in the short term. This includes: fixing damaged transmission infrastructure, building new transformers and adding generation capacity.

The energy gap is not just a temporary problem, but a long-term issue the country must deal with for decades to come. With the opening of Myanmar to outside investment and the wide-ranging reforms being undertaken, economic activity has been increasing at a rapid pace and is expected to continue to do so for the foreseeable future. Myanmar is the fastest-growing economy in ASEAN and one of the fastest-growing in the world. According to the ADB, electricity demand is increasing by 15% annually and is set to double by 2020.

Overcoming Challenges

The price of electricity is seen as problematic. In Myanmar, households are charged MMK35 ($0.028) to MMK50 ($0.04) per KWh and businesses MMK75 ($0.06) to MMK250 ($0.20) per KWh. In both absolute and comparative terms, the household pricing – representing 48% of the total revenue – is extremely low. At the retail level, Myanmar consumers pay at the lower level of pricing for that sector, about half that of their counterparts in Thailand, while businesses pay about one-third. Myanmar rates are less than a third of those in ASEAN overall. Still, the lowest rates are far below the cost of producing and distributing electricity, and this has significant implications for the future of power development. The government loses money on each unit of electricity sold, with the annual shortfall estimated at $300m. In FY 2015/16 the MoEE said it spent MMK22.67 ($0.018) per unit in subsidies. Efforts to increase household rates have been met with resistance and are unpopular. The last major adjustment, in 2014, was delayed due to concerns about how it would affect the poor and small commercial or industrial users. ”The people need to be educated about the actual costs for things, particularly electricity,” U Zeya Thura Mon, CEO of holding company Zeya & Associates, told OBG. “If the government continues to subsidise electricity tariffs, then it will be difficult for the sector to grow.”

Change Of Plans

Myanmar’s ambitious energy targets have raised some concerns as well. Some industry observers say that the lack of a robust regulatory framework, complex politics and the need for the right technology are going to make some of the targets difficult to meet. The 20% renewable ratio is a particularly high bar, and questions have even been raised about the 100% electrification goal (though the even critics agree that a rapid increase in this ratio is nevertheless doable).

Myanmar has been flooded with advice from a wide range of institutions, but no consensus has developed. It has received assistance from the World Bank, the UN, JICA and the ADB, and is working with a National Energy Policy, an Electricity Sector Policy, an Energy Master Plan, a revised Energy Master Plan, an Electricity Master Plan and the NEP. The assessments are, in and of themselves, helpful enough. However, the abundance of input has left the country without a single, coherent vision, just many choices.

The varied options can be as much a hindrance as a reason for optimism. Critics add that while the NLD has committed to developing the sector, its goals are rather broad and do not provide much direction. The government is also lacking in the necessary resources. “They are active but they lack the budget; the plan is only a plan on paper,” said U Kyaw Kyaw Oo, director at Barons & Fujikura. He added, “There are a large number of reports, but which is the best and which will the government try to adopt? To meet the 2030 plan is quite complicated.”

A number of observers remark that while the focus is on generation, transmission will be the real challenge. As it stands, Myanmar has more 66-KV lines than 132-KV or 230-KV ones. Without the capacity to move the electricity, the newly installed generation units will not be very useful. A major bottleneck could result if the right investments are not made. “Whatever we develop on the generation side, the transmission is not ready,” said U Kyaw Kyaw Oo.

The energy mix has become a major sticking point in the development of the sector. The original concept was to increase the use of coal and de-emphasise hydro, taking coal from almost nothing to a third and significantly cutting water power. Because of resistance to coal, the government acknowledges it might not be possible to meet their goals. As a result, the country may have to adjust its development to be more in line with the political reality. It is likely that hydropower will remain a majority portion of the mix, while liquefied natural gas (LNG) can also play a role.

Coal Power

Coal was seen early on as a solution for energy development in Myanmar. The fuel is cheap and the plants easy to build, allowing the country to boost its capacity quickly and at a low cost. It was to be a substantial component of the planned energy mix: a target had been set for around 7940 MW of coal power to be added, a full third of future capacity. However, despite advancements in clean coal technology, this energy source is still seen as highly polluting and is being resisted at home and abroad, slowing development and fundraising efforts.

Due to environmental concerns, major sources of international financing for coal are drying up. In February 2016, the World Bank said it would not be funding any coal-fired plants. While the group recognises Myanmar’s urgent need for power, it feels that coal is not appropriate, especially since other resources, such as hydropower and natural gas, are cleaner and more readily available. Across the board, multilateral development banks are becoming increasingly hesitant to get involved in coal-related projects. In addition to the World Bank, the ADB and the European Investment Bank will only provide funding for coal projects under very special circumstances.

Others are on the fence. JICA has funded some coal plants in recent years and is pushing supercritical technology in general, while the AIIB is also backing such projects. Yet it is not clear how successful the new institution will be in supporting coal ventures in Myanmar. The AIIB wants to be known as green and responsible and has been vague on its coal policy. On the other hand, private sector participants from some countries are enthusiastic about investment, especially Indonesian and Thai interests.

Limited Supply

Myanmar is not an ideal place for the development of coal. It has very little of the fuel, and what it does have is of low quality. If it is to use coal for power generation in any significant quantity, it will have to import it, probably from Australia or Indonesia. Myanmar also has almost no history of coal generation. Its installed base of coal plants is quite low. As of the end of 2016, it only had two coal-fired plants up and running: one in Shan State, the 120-MW Tigyit plant, and one in the Tanintharyi Region with a capacity of 8 MW.

Even the government is undecided about what to do and has been sending mixed signals. While it said that it supports coal, 11 coal plants that were agreed to in 2010 have been placed on hold, and some have been cancelled outright. The situation is dynamic. The government is facing serious resistance to the use of coal, but industry observers note that the public is not very well informed about coal or indeed other generation technologies, which have helped to make the plants cleaner than previously.

Coal Challenges

In July 2015 a 279-MW coal-fired plant in Htantabin Township, Yangon was cancelled by the MOEP. The project was to be developed by China’s Huaneng Lancang and Myanmar’s Htoo Group of Companies, under a 2010 MoU. A 1280-MW supercritical coal-fired plant in Ye Township, Mon State has also been delayed, though the government has said the project has not been cancelled, only suspended. Backed by Toyo-Thai Corporation, the facility was to adhere to global pollution criteria.

Other projects seem to be going forward but face uncertainty. In 2016 Chinese interests started refurbishing the 2x60-MW Tigyit coal-fired plant. The facility – the country’s first coal-fired station, built in 2001 and operational in 2005 – has been the subject of concern regarding the both environment and efficiency. In 2015 it was shut down for what was to be two years due to “mechanical problems”, but reopened in late 2015 after the previous government granted Wuxi Huaguang Electric Power Engineering a lease to run it for 22 years.

At the end of 2016 local groups were continuing to call for its complete shutdown. They said that health concerns were still an issue and argued that the tests being conducted were not being carried out in a transparent manner. Particularly worryingly, the Tigyit plant is supplied by the Tigyit coal mine – a deposit discovered in 1989 composed of lignite, which is highly polluting and has poor thermal qualities. However, officials insist that the recent operation of the plant is for testing purposes only and that no final decision has yet been made on whether it will return to public-use operations.

Development Of Oil & Gas

Myanmar has been producing oil since the middle of the 19th century, but because of Western sanctions and the complex bureaucracy before the recent reforms, the country has, until now, been a relatively modest producer. Since 2010 much has changed. On one hand, domestic demand for hydrocarbons has increased significantly with economic growth and liberalisation, which has resulted in an increase in investment and production. On the other hand, the reduction in the global price of oil has served to prevent the sector from developing as quickly as it might have otherwise done. “The removal of sanctions has seen the entrance of many reputable energy companies,” U Than Htunt, general manager of Path-Finder Technical Services, an oil field service company, told OBG. “But the global oil price has reduced the amount of investment trickling down, resulting in fewer opportunities for local service companies.”

As a result of the reforms, the process for gaining access to resources has been made more straightforward, while a number of bidding rounds have been held for blocks onshore and off. As of early 2016 the country had 17 onshore oil and gas fields and four offshore. It exports about 1.1bn cu ft of natural gas to Thailand and 300-400m cu ft to China. About 300-350m cu ft is used domestically.

Natural gas production has been particularly strong. According to the US Energy Information Administration, it went from 450bn cu ft in 2012 to 692bn cu ft in 2015, due in part to the Zawtika gas project coming on-line in 2014. This trend is seen continuing on new exploration and as new production comes on-stream. As demand rises within the country, Myanmar is seeking to use more of its natural gas production domestically.

Oil has not kept up with gas. Because of the reduction in the price of crude, there has been little incentive to explore; overall production levels have declined since the 1980s, and new discoveries are needed in order to get the output near previous levels. “The downturn of the oil and gas sector has limited the expansion options for the industry and has resulted in a reduction of revenue for local service companies,” U Aung Kyaw Kyaw, managing director of Alliance Logistics, told OBG. “In order for activity to increase, price per barrel needs to reach approximately $60 for production to be sustainable.”

Currently, Myanmar uses production-sharing contracts (PSCs) to guide investment in the oil and gas sector. Attorneys familiar with these contracts assert that they are fairly straightforward and follow the Indonesian model. They include all the standard features: relinquishment, cost recovery, work commitments, royalties, profit oil and equity stakes for the government. The contracts also deal with domestic supply commitments; those offered recently reflect the country’s shift in emphasis, from one focused on the generation of hard currency – as was the case before the reforms began – to one that is in need of natural gas to fuel its own economic growth. PSCs today require a substantial share of oil output be diverted to domestic use. A number of major international firms received licences during the third round, in 2013. These included: BG Group, Woodside Energy, Oil India, Shell, Statoil, ConocoPhillips and Eni. The Woodside Petroleum blocks have been particularly productive. In 2016 the company increased its reserve estimates for the areas it is exploring. Despite the success, no new bidding rounds are expected until 2017. The government has said it wants to focus on the blocks awarded in the 2013 round.

Chevron did put all of its Myanmar assets up for sale in early 2016. However, this move was viewed as being driven by the company’s desire to unload non-core assets and was not interpreted as a statement about the country’s potential. Given the decline in hydrocarbons prices, Chevron is currently consolidating and building up its cash reserves. Indeed, the potential sale was viewed as a positive, as it indicates that the company is confident that other investors are willing to buy into the country.

Myanmar and China share an oil and gas pipeline that runs from Kyaukphyu to Kunming. The pipeline has been operational since early 2015, allowing China to move resources from the Middle East without passing through the Straits of Malacca. The natural gas pipeline can carry 424bn cu ft of gas per year, while the crude oil pipeline has the capacity for 440,000 barrels per day. The pipelines, however, have been the target of demonstrations, with local residents saying that their property was damaged during the construction phase.

The Lng Solution

LNG has become one of the best possible sources of additional energy for the country, and is seen by some as the key to closing the energy gap, especially if coal remains problematic. It is cleaner and less disruptive than other options. It is also readily available on the international market, given the extensive development of relevant assets in the past. According to Billy Harkin, chairman, Energise Myanmar, “LNG is reliable as a supply.” As a result, the government is seeking partners to develop its LNG infrastructure. In September 2016 it issued an invitation for expressions of interest seeking firms for investment in LNG import, regasification, storage and distribution. Interest in developing Myanmar LNG assets has been expressed by parties from several countries, including China, Korea, Japan, Norway, Singapore, Thailand and the Netherlands.

The China National Petroleum Corporation has proposed an LNG terminal at Kyaukphyu. Japanese companies have studied the possibility of developing an offshore floating storage and regasification unit (FSRU). Thai firms are already involved in the development of LNG facilities in Myanmar. The Thai stateowned oil and gas company, PTT, and Ratchaburi Electricity Generating reported in 2015 that they had signed deals in Myanmar with respect to floating LNG storage and FSRU facilities.

The proposed FSRU would have the capacity of 3m tonnes per annum and require a $400m investment. Meanwhile, Royal Dutch Shell has signed an agreement with Thai partners to develop an LNG terminal and regasification facility at Dawei. Italian-Thai Development will build the facility, which will cost an estimated $500m and have an annual capacity of around 6m tonnes. The World Bank is slated to supply the funding for the terminal.

The Nuclear Option

In 2015 Russia and Myanmar signed an agreement on the development of nuclear power and the training of relevant staff. A working group was formed in 2016. Discussions on the building of a reactor in Myanmar are not new, with cooperation going as far back as 2007, when the countries agreed to build a 10-MW nuclear plant.

The Rosatom Corporation, the state-owned Russian company behind the project, has been working on the development of nuclear power generation in the ASEAN region. It has already reached project agreements with Vietnam and Indonesia and is looking for a third country with which to develop a plant. It has cooperation agreements with Thailand, Myanmar, Laos and Cambodia. In the region outside of ASEAN, the company is working with Bangladesh, where it is building a power plant.

Outlook

Significant generation and transmission capacity will be built in Myanmar in the coming years. The exact nature of the generation will not be certain for some time. The new government needs to arrive at a solution that is cheap, bankable and acceptable to the population. As of the end of 2016 LNG seemed to be the favoured fuel going forward, in part because it is clean and available, and in part because it is receiving substantial support, especially from Japan. However, the ultimate solution will likely be a pragmatic one, and coal and hydropower could also play a role, if the funding is available and if domestic concerns from the country’s citizens can be addressed.

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The Report: Myanmar 2017

Energy chapter from The Report: Myanmar 2017

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