Myanmar’s Energy Sector: Inviting the World to its Shore

03 Apr, 2014    ·   4368

Vibhanshu Shekhar analyses the opening up of Myanmar's energy sector, and projects a positive outlook for the country

Vibhanshu Shekhar
Vibhanshu Shekhar
Research Fellow
Indian Council of World Affairs
New Delhi

In a bid to bolster the country’s efforts to open up to the world, Myanmar, on March 26, invited 13 oil companies from all over the world to operate in oil and gas explorations in 20 offshore blocs off the coast of Myanmar in the Bay of Bengal, Moattama gulf and the Tanintharyi Basin. Ten of these are shallow water drilling projects, and the rest, deepwater drilling projects. In April 2013, the government of Myanmar had floated the tender for 30 offshore blocs and pre-approved 60 proposals in July 2013. The recent announcement comes at a critical time when the country is somewhat successfully delivering on its ASEAN Chairmanship, gradually drifting towards federalism as a founding basis of Myanmar as a nation-state, and emerging as one of the important investment destinations in Southeast Asia.

Significance of the announcement
First, these concessions expand the scope for major market players to enter Myanmar’s energy sector. Major international oil businesses – Total, Royal Dutch Shell, Chevron, Unocal, ConocoPhillips, and Reliance Industries, among others – will participate in exploration and production operations. While previous explorations and marketing were confined primarily to Asian oil companies, these new concessions involve major oil businesses from the West. This will give a much-needed boost to Myanmar’s international attractiveness and its investment climate.

Second, the consequent entry of major market players would bring in investment and technology – two components important for the development of Myanmar’s negligible infrastructure and overall economy. With the prediction of 6-7 per cent growth in annual GDP in the short to medium term, such inflow of FDI and advanced technology may give a major boost to Myanmar’s economy, and the modernisation of its port infrastructure. This can further help its developing the country’s coastal areas as business hubs. In 2013 alone, Myanmar received over $4 billion investment, with a bulk of it flowing primarily from Asian businesses in real estate, construction and energy infrastructure.

Third, this will give a major boost to both the upstream and downstream industries along the country’s coastline. The development of industries along the coast may lead to the modernisation of the southern cities, further integrating Myanmar with the globalised world.

Fourth, this will accelerate the much –needed financial and banking sector reforms in Myanmar. Though Myanmar’s financial sector has seen some improvements over the past two years, it still remains rudimentary and underequipped. The financial regulatory system too needs to be developed. In December 2013, Myanmar decided to allow foreign banks to set-up fully owned subsidiaries following the visit of Christine Lagarde, Managing Director, International Monetary Fund; and several Asian banks have since opened their representative offices in the country. The entry of global businesses has tempted global finances and microfinance companies, such as MasterCard to enter the local market.

Finally, the entry of international corporations and associated economic reforms indicates the end of Myanmar’s international isolation, and helps its leaders project the country as a regular nation-state. The involvement of oil companies as a result of March announcement is going to boost Myanmar’s normalisation and speed up the process of the country’s continued integration with the international business.

However, there is a danger of locals not benefiting from this development. Myanmar learn from the Indonesian experience in its resource-rich Aceh and West Papua, which experienced decades-long instability and insurgency. Some of Myanmar’s oil-rich areas – namely the Rakhine and Tanintharyin basins – have witnessed turbulence for a long time. Naypyidaw has to ensure that the entry of big businesses in the troubled regions does not fuel the rise of resource nationalism and/or greater local resentment against the developmental policies.

India in Myanmar’s Energy Sector
India’s presence was established at beginning of this century with the state-owned Oil and Natural Gas Corporation (ONGC) entering the Myanmarese market. Subsequently, two other public sector companies – Oil India Limited (OIL)and Gas Authority of India Limited – tried to enter the market somewhat unsuccessfully. These initial ventures did not go far, with both ONGC Videsh and GAIL losing the marketing rights to Chinese companies. India made its first private sector entry into Myanmar’s energy market when Essar Oil Limited bought exploration and production rights in two blocs in Rakhine province.

India has since seen a continued expansion of its foray into Myanmar’s energy market – with the public and private sector entering both as solo players and in joint ventures. The recent announcement has further ensconced India’s presence in Myanmar’s energy sector. Among the Asian companies, four Indian companies – OIL, Mercator, Oilmax, and Reliance Industries – bagged exploration and production rights for four oil blocs [M-4, M-17 and M-18 and Yetagun East Bloc (YEB)] off the gulf of Moattama in the southern peninsular Myanmar. India’s two public sector oil companies – ONGC Videsh and OIL – had bid for three blocs each, with the former winning none. Essar Oil and ONGC Videsh have already been undertaking exploration operations in the country. According to the conditions put forth by Myanmar, these Indian companies will have to partner with the local Myanmarese companies in their operations.

The new concessions may prove beneficial to India for three reasons: All of them involve shallow water drilling and therefore are less expensive and relatively safer. They are the most developed and explored oil blocs in the country and have been in use. Second, if India wins the marketing rights of gas from these blocs, oil and gas could be directly shipped to its southern ports, such as Vishakhapatnam and Chennai. These blocs are close to Dawei deep seaport that Thailand is developing into a mega transport hub, thereby further integrating Indian and ASEAN businesses. Third, India could avoid third-party negotiations problems that it faced in the case of the India-Bangladesh-Myanmar pipeline.

Myanmar is trying to balance the presence of Western and Asian energy companies to widen the FDI sources and to generate a good image for the country in the West. Simultaneously, Naypyidaw has, by making it mandatory for the foreign oil firms to partner with local businesses, ensured some level of boost to local capacity-building. Such a strategy would introduce greater transparency and aid in the country’s liberalisation process.