Thursday 27 September 2012

Myanmar’s offshore petroleum opportunities a “new era” for the industry



Drilling Deep

Myanmar’s offshore petroleum opportunities a “new era” for the industry

By Victoria Bruce

Myanmar’s lucrative upstream oil and gas industry represents a “new era” for incoming firms as its government gears up to release offshore and deep water blocks as part of an upcoming international tender.
Vice President of Dutch multinational Shell’s exploration arm, Marc Gerrits said Myanmar’s unexplored deep water fields held untapped potential for companies wielding the latest exploration technology.
“The truth be told, we could be on the cusp of a new ultra deep water era,” Gerrits told a conference of industry representatives at the 2nd Myanmar Oil, Gas and Power Summit in Yangon held in early September.

A Shell offshore platform

Breaking new records?

“The industry could be breaking new records right here in Myanmar,” he said. Gerrits said Shell, a leader in deep water exploration and production, currently operates the Gumusut deep water development project in Malaysia in water depth of up to 1,200 metres alongside ConocoPhillips Sabah, Petronas Carigali and Murphy Sabah Oil.
Myanmar Union Minister Than Htay told a crowd of more than 300 conference attendees that a barrage of big name energy firms were looking at opportunities in the country’s upstream industry.
“Many multinational petroleum companies including Shell, BP, BG ConocoPhillips, Chevron and many others have shown great enthusiasm to invest and keen interest to conduct upstream petroleum exploration in Myanmar’s petroleum sector,” Than Htay said.
Representatives from Dutch-British multinational Shell are in negotiations with the Myanmar government for at least one offshore block, said an industry insider, although the company declined to confirm these reports.

Total takes stake

France's Total, which operates the Yadana gas field, announced plans on September 3 to join forces with Thai operator PTT EP [PTT Exploration and Production] and take on a 40 percent stake in the M11 offshore block, subject to Myanmar government approval.
Despite many international energy giants knocking on its door, the Myanmar government is yet to release dates for the much-anticipated international tender, although industry insiders said it could be announced later in September.
“The blocks for this bidding round are under consideration and assessment and hope to be finalized in due course,” Than Htay said.
Myanmar has around 29 lucrative offshore blocks and 34 onshore blocks, around 30 (15 of each) of which are expected to be offered in the next bidding round, and the country’s untapped offshore and deep water oil and gas reserves are tipped as  being certain to lure in big name Western energy firms.

Concerns over data

However the lack of current geological data on Myanmar’s unexplored energy reserves means foreign exploration firms interested in the next international tender will need to hedge their bets and have a strong appetite for risk.
The Myanmar government is keeping existing data close to its chest ahead of the upcoming bidding round and Than Min, chief geologist with the government entity the Myanmar Oil and Gas Enterprise (MOGE), said government policy determined how much data should be shown to the bidders.
“I hope we can show more data than last time,” he said in response to questions from conference attendees, referring to the 2011 bidding round where nine onshore blocks were awarded to seven international companies.
“When you are awarded, we will transfer all the data we have,” Than Lwin said.
Edwin Vanderbruggen, partner of specialized tax and accounting firm VDB Loi said Western energy companies were ramping up their interest in post-sanction Myanmar. “Western companies are looking at the opportunities with interest, gathering information and doing feasibility studies,” Vanderbruggen said.
“For many of them, this is the first time they’ve actually studied a Myanmar deal, so there is a learning curve,” he said.

Post-sanctions rush

Previously, strict Western sanctions imposed on the former military government meant Myanmar was off the map for many European and American firms.
Since the country’s transition following elections in November 2010, embarking on a series of political and economic reforms, the international community has responded by easing sanctions and ramping up aid commitments, and energy giants are eying opportunities in what has been dubbed as Southeast Asia’s final frontier market.
“Whether this interest will translate into actual deals by the biggest players does not only depend on Myanmar itself, but also on the opportunities and returns the investors have elsewhere,” Vanderbruggen said.
The Myanmar government is offering fiscal incentives to encourage deep water exploration, such as more favourable terms for its deep water blocks, said Nopporn Wongsatitporn, associate director of gas and power at leading strategic and financial advisory services firm AWR Lloyd.

Risks to be weighed

However a myriad of legal, political and financial risks still exist in post-sanction Myanmar, and incoming U.S. firms will need to adhere to stringent reporting requirements and compliance issues imposed by their home government so as not to fall foul of American sanctions.
“Many multinational executives say they want regulatory clarity in a market dominated for decades by tycoons with ties to well-connected generals – a tightly knit circle of cronies who face competitive threats as the government seeks to free up the economy and introduce
greater transparency,” he said.
Nopporn said a major challenge faced by Western oil companies investing in Myanmar lay in identifying an experienced local partner free of ties to officials blacklisted in the U.S.
“Around 60 Myanmar firms, such as MPRL E&P and Parami Energy, are authorized to bid for oil blocks with foreign partners but few have much experience in energy exploration,” he said.

Local partner a must

All foreign firms investing in the oil and gas sector are required to take on a local partner and enter into a production sharing contract and partnership with the government entity MOGE which oversees licensing and holds a majority stake in all onshore and offshore blocks.
Nopporn recommended foreign firms do their homework and engage in thorough due diligence to minimize any reputational or legal risk.
Major players that attended the 2nd Myanmar Oil, Gas and Power Summit, organized by Singaporean events company CMT, included Shell, Unocal, ConocoPhillips, BG Group and Chevron.

This article was first published in business journal M-ZINE+ on 24 September 2012

Monday 17 September 2012

Telecoms giants jostle ahead of licence tender

Telecoms giants jostle ahead of licence tender

Digicel founder Denis O’Brien (left) at the Myanmar Global Investment Forum in Nay Pyi Taw on September 12. Booethee / The Myanmar TimesDigicel founder Denis O’Brien (left) at the Myanmar Global Investment Forum in Nay Pyi Taw on September 12. Booethee / The Myanmar Times
The government is close to selecting an international consultant to oversee an upcoming tender for telecommunications licences, having shortlisted five companies from a pool of 64 applicants, sources said last week.
Indian network services company GTL Limited, China’s Huawei and Thailand’s Symphony Communications are in the running alongside consultants from Japan, Australia, Germany and the United States.
“We have been participating for this particular tender for the consultancy,” GTL’s head of business development, Sanjay Hirpara, said last week.
“There are definitely good opportunities here for investment and for business,” he said.
But the major prize for foreign firms is the four telecommunications licences that the consultant will eventually recommend the government award. Russian heavyweight VimpelCom, the sixth largest mobile network operator in the world in terms of subscribers, Norwegian firm Telenor, one of VimpelCom’s major shareholders, Vietnam’s VNPT-Fujitsu and Digicel, the largest mobile operator in the Caribbean, are among the companies seeking a piece of Myanmar’s untapped telecoms market.
U Tin Win, the chief executive officer of Yatanarpon Teleport, told The Myamar Times in a recent interview that two operating licences could be given to state-owned Myanmar Posts and Telecommunications (MPT), while another would go to his company.
But MPT indicated at a telecommunications and ICT investment forum in Nay Pyi Taw on September 14 that there could be several avenues for international companies to enter the telecommunications sector.
Foreign companies can bid to establish a joint venture with MPT or Yatanarpon in an upcoming tender, which will be overseen by the consultant firm, said U Than Tun Aung, deputy director of the ministry’s Posts and Telecommunications Department.
But up to two more licenses could be awarded to other foreign firms, which can then choose to start a new firm with a local partner or go it alone, U Than Tun Aung told a roomful of industry players.
The option for 100-percent foreign ownership would depend on planned amendments to the foreign investment law, which have been passed by both houses of parliament and are being reviewed by the President’s Office, U Than Tun Aung said.
As part of the government’s “roadmap” to telecommunications sector reforms, a regulatory body with about 700 staff will also be formed to oversee aspects of telecommunications services, such as network sharing and equipment standards, he said.
Irish entrepreneur and Digicel founder Denis O’Brien told The Myanmar Times his company had set its sights on a joint venture with MPT and was prepared to invest up to US$1 billion into developing the telecommunications network.
“We think we could work really well with them,” Mr O’Brien said in an exclusive interview at the Myanmar Global Investment Forum in Nay Pyi Taw last week.
“In order to build a world-class, future proofed mobile telecommunications infrastructure in Myanmar, which will make affordable telecommunications accessible to the people of Myanmar, an initial investment in the region of $1.2 billion needs to be made,” Mr O’Brien said, adding “as telecommunications penetration and usage increase, the investment will also increase”.
Digicel holds operating licenses in 31 countries and has over 13 million subscribers throughout the Caribbean, Central and South America region, and the Asia Pacific region.
The group has already made one investment in Myanmar – an online recruitment site that has attracted more than 30,000 page views in the past three weeks, said vice chairman Leslie Buckley.
“We operate as local as we can,” Mr Buckley said, highlighting the group’s strategy to integrate itself in host investment countries through strong community engagement, such as its football sponsorship deals in Myanmar.
While the country’s low mobile phone penetration rates and population of about 60 million make Myanmar an attractive prospect for foreign telecoms firms, not all are starry eyed over their options.
“Is this just an exercise to glean as much technology from international companies by saying ‘we will partner with you,’?” questioned one potential foreign investor, a supplier of international handsets, at the September 12-13 forum in Nay Pyi Taw.
“The local firms will want a 50-50 joint venture arrangement or to be the majority shareholder but they won’t match you buck for buck – they’ll match you by allowing you to partner with them and access that operating concession,” he said, asking not to be named.
Mr O’Brien said a functioning and accessible telecommunications network was essential for economic growth.
“Everyone is talking about a hyper-growth economy here but they’re forgetting one thing: that without a telecommunications infrastructure, that just won’t happen,” Mr O’Brien said.
Because it is developing its telecoms industry relatively late, Myanmar has the advantage of learning from the lessons of other countries and pick the most advanced technology available to go straight to 4G, or fourth generation, services, Mr O’Brien said.
“All neighboring countries have 2G or 3G but what Myanmar can do now is just go all the way to [long-term evolution (LTE)] and bring broadband to every part of the country to 60 million people and bring them voice and other data services,” he said.
“It could be a quantum leap – Myanmar could jump 50 years all in one move.”
Johan Adler, country manager for Swedish telecommunications heavyweight Ericsson, said the fourth-generation LTE technology offered about three times faster data speed than the latest version of WCDMA/3G.
“In a Myanmar context, with relatively slow data access connections, LTE can be a substitute to the fixed data line and offer superior bandwidth to residential users and small offices. It’s fast to deploy and faster than any other service available today,” Mr Adler said.
However, some non-government groups, including US-based Conflict Risk Network, have raised concerns that investment in the telecommunications sector could fuel repressive tactics of internet control and surveillance, which were common during the previous military government.
“The ICT sector is also high risk, as its potential positive and negative roles are heightened in conflict-affected areas,” said Kathy Mulvey, Conflict Risk Network director.
But if managed well, the development of Myanmar’s telecommunications industry will be an important driver of economic growth, said Jared Bissinger, a PhD student at Australia’s Macquarie University who is studying Myanmar’s economy.
“As in many other developing countries, investment in Myanmar’s telecommunications industry can decrease the costs of doing business, improve access to information, and facilitate inexpensive and convenient transactions, all of which will help improve the business environment.” Mr Bissinger said.

This article first appeared in the Myanmar Times print and online editions on 16 September, 2012:
http://www.mmtimes.com/index.php/home-national-news/136-national-news/1438-telecoms-giants-jostle-ahead-of-licence-tender.html

Friday 7 September 2012

Not So Fast: Local business worries over new Foreign Investment Law



 MZINE+
Not So Fast
Local business worries over new Foreign Investment Law

By Victoria Bruce

Proposed changes to Myanmar’s much-anticipated foreign direct investment (FDI) law restricting foreign investment in certain areas could protect local business at the expense of inhibiting long-term socioeconomic growth.
This is the cautious response of experts who are following the debate inside and outside parliament over a law that will help lay out the playing field for foreign investors keen to enter Myanmar as the country opens up.
Experts say the country’s new FDI law could be more restrictive than its 1989 predecessor, and warned the country, currently poised at the crossroads of opening up its crippled economy, could take a wrong turn towards “retrograde” and “protectionist” economic policy.
“It is so important that, at this critical juncture, Myanmar does not lock its economy up in the clutches of old vested interests,” said Dr Sean Turnell, an Australian economist and Myanmar expert.
The under-developed Southeast Asian nation has been going through a series of economic and political reforms aimed at attracting foreign investment. However, these latest updates to its foreign investment law may do little to encourage the confidence of foreign investors, experts told M-ZINE+.
Dr Turnell said the move to restrict foreign trade and investment could discourage foreign investors and prove detrimental for the country’s growth.
“This is an example of the 'creeping protectionism' many of us have feared,” he said.
The new draft will restrict 100 per cent foreign ownership in certain sectors and bans investment in “small and medium industries and enterprises; agricultural and livestock business being carried on by local business people; retail business and small to medium service enterprises,” according to Reuters news agency.
Under the old law, foreign firms could set up shop with 100 per cent capital in all sectors but if the proposed changes are enacted then their operations will be restricted to joint venture partnerships with local firms or the Myanmar government.

An uneven playing field

Previously, local businesses have spoken out against certain sections of the government’s proposed foreign direct investment law, said Dr Maung Maung Lay, the vice president of the Union of Myanmar Federation Chambers of Commerce and Industry (UMFCCI).
The proposal to extend tax holidays for foreign firms from three to five years has been met with resistance from Myanmar’s private sector, he said.
“This part of the new FDI law is certainly creating the biggest bones of contention so far and domestic business doesn’t like it,” said Jared Bissinger, a PhD candidate at Macquarie University studying Myanmar’s economy. “You want to create a level playing field for all business so there’s no need to prejudice one over the other.”

Worries over tax breaks

Local businessmen appear concerned that they may lose out.
“If they give the incentives to the foreigners, say a five-year tax break, then we should also be granted five years, that would be fair,” said Ohn Lwin, managing director of Toyo Battery, a local battery manufacturer.
Dr Maung Maung Lay said extended tax holidays for foreign investors would put local enterprises at a competitive disadvantage, adding many firms fear they will be overwhelmed by incoming competition.
“The private sector feels that currently the playing field is not level and the government is too generous to the foreigners,” said Dr Maung Maung Lay, adding local firms lack the capital and technology to compete effectively.
“In that sense, our mom and pop shops will all suffer and become overwhelmed by these potential investors,” he said.

Trade protection worries

However, a fine line exists between protecting local firms and inhibiting competition, Bissinger said.
“Trade protection often hurts the economy of the country that imposes it, and that’s one of the oldest but still most startling insights economics has to offer,” he said.
“If you keep restricting competition, what incentives will there be for these local companies to ever become strong enough to compete against foreign investors?” Bissinger said.
He said competition in retail industries such as food and beverage industries not only expands a consumer’s choice, thus increasing their welfare, but also helps bring down pricing and improves quality of products.
“Prohibiting competition and choice in the long run is not the answer, and won’t help companies from Myanmar learn, grow, and compete domestically or internationally,” Bissinger said.
He said the role of government should be to protect local companies by ensuring an appropriate degree of regulation regarding competition and suggested a compromise solution might entail allowing some protection in certain areas for a specified length of time, which would allow local firms to catch up.
“The best medicine to kick-start the country’s economy is to adopt economic policies that create a fair, predictable and stable environment from which everyone enjoys some benefits,” Bissinger said.

Protection fails

The failure of attempts to bolster domestic economies and protect local business and jobs from foreign competition with protectionist economic policies that restrict the scope of foreign firms and international trade has been documented at length by economists.
“Some types of protection can be used in positive ways, but governments must always be careful with such measures,” Dr Turnell said.
“They scream vested interest against that of the greater good and the histories of many countries are littered with failed protectionist policies,” he said.
Legal experts have pointed to the need for Myanmar to place itself up there with neighbouring countries as an attractive alternative for foreign investors.
“It is important, this being a very important law, that it should be right and also investor friendly compared to similar laws in the region,” said Min Sein, a Supreme Court lawyer.
“Furthermore, the law should not deprive or eclipse the opportunities of local businessmen,” he added.
Local stakeholders have played a role in influencing the government’s policy changes and many fear they are ill-prepared and under-financed to compete against an influx of foreign firms.
Dr Maung Maung Lay said the government was fine tuning certain aspects of the new law to “alleviate the concerns of the locals and get input from all the stakeholders.”

Need for clarity and stability

Dr Turnell said while a new investment law will help encourage investment, the most important attributes sought by investors are stability, sound institutions, policy and rule of law and Myanmar could learn from the experience of other ASEAN countries such as Thailand and Vietnam.
“But Myanmar must be careful not to be engaged in a race to the bottom with such countries to attract investors,” Dr Turnell said.
“The most important thing is that the law progresses in a way that creates confidence in the process in which it is made, and that the law itself be sound and reasonable,” Dr Turnell said. “It does not have to be, and should not be, excessively generous to international investors, especially in areas (such as resource and energy extraction) where they will come anyway,” he said.
The latest draft of the FDI law is tipped to extend land lease terms with public or private sector to a period of 50 years extendable for two 10-year terms, depending on the nature of the business and the size of the investment, compared to an earlier draft stating 30 years with two 15-year extensions.

This article first appeared in issue 36 of weekly business magazine MZINE+ on 4 September 2012.

Tuesday 4 September 2012

Energy giants gauge Burma's potential ahead of tender

Energy giants gauge Burma’s potential ahead of tender



By KATE KELLY
Published: 4 September 2012
The Democratic Voice of Burma
big-oil
A labourer makes a list at a warehouse selling oil beside in Rangoon on 18 May 2009. (Reuters)
As international energy giants flock to Rangoon for the 2nd Myanmar Oil, Gas and Power road show this week, western and Asian operators are scoping out investment opportunities in Southeast Asia’s final frontier market.
After western governments eased sanctions targeting the country, Burma’s oil and gas industry has seen increased attention from American and European multinationals that are eager to secure a piece of the action.
“Many multinational petroleum companies including Shell, BP, BG ConocoPhillips, Chevron and many others have shown great enthusiasm to invest and keen interest to conduct upstream petroleum exploration in Myanmar [Burma]’s petroleum sector,” union minister Than Htay told a crowd of more than 300 attendants at the MOGP conference today.
Despite these international energy giants knocking on its door, the Burmese government has yet to release dates for the much-anticipated international tender, although industry insiders said it could be announced later this month.
“The blocks for this bidding round are under consideration and assessment and hope to be finalised in due course,” said Than Htay.
The Ministry of Energy said 29 lucrative offshore blocks will be offered alongside 34 onshore blocks in the next bidding round, and Burma’s untapped offshore and deep water oil and gas reserves are tipped as being certain to lure in big name western energy firms.
“US firms are interested in offshore, not onshore,” said Ken Tun, CEO and president of local firm Parami Energy, which has a 22 percent stake in an onshore block alongside Indian operator Jubilant.
“These guys want to play big and the big games are all offshore,” he said.
Edwin Vanderbruggen, a partner in specialised advisory firm VDB Loi, said western energy companies were ramping up their interest in post-sanction Burma.
“They’re looking at the opportunities with interest, gathering information and doing feasibility studies,” said Vanderbruggen. “For many of them, this is the first time they’ve actually studied a Myanmar deal, so there is a learning curve.
“Whether this interest will translate into actual deals by the biggest players does not only depend on Myanmar itself, but also on the opportunities and returns the investors have elsewhere,” said
Vanderbruggen.
Representatives from Dutch-British multinational Shell are in negotiations with the Burmese government for at least one offshore block, said an industry insider, although the company declined to confirm these reports.
Chevron, Exxon Mobil and Conoco Phillips were part of a delegation of about 40 US firms that visited Burma in July and are tipped to be the next big players in the country’s oil and gas scene, said Nopporn Wongsatitporn, associate director of gas and power at leading strategic and financial advisory services firm AWR Lloyd.
However, Wongsatitporn said stringent reporting requirements and compliance issues imposed by their home government mean incoming US firms would need to watch their step so not to fall foul of American sanctions.
“As an energy expert, the major challenge faced by western oil companies investing in Myanmar is identifying an experienced local partner free of ties to officials blacklisted in the US,” he said.
All foreign firms investing in the oil and gas sector are required to take on a local partner and enter into a production sharing contract and partnership with the government entity MOGE which oversees licencing and holds a majority stake in all onshore and offshore blocks.
But while western energy companies are expected to make their presence felt, they won’t be tipping the balance against eastern firms just yet, said Jared Bissinger, a PhD student from Australia’s Macquarie University who is studying Burma’s economy.
“Myanmar’s oil and gas sector has many more firms from Asia than the west, and it will stay that way for quite a while,” said Bissinger.
“Part of the reason for this is simply geography – Myanmar’s location, comparatively far from the west makes it more economical to export oil and gas to Asian countries. Remaining sanctions, like the import ban, play a role too, as does the SDN [Specially Designated Nationals] list,” said Bissinger.
Asian players including Korea’s Daewoo, Thailand’s PTT EP, Malaysia’s Petronas and Chinese firms SINOPEC and CNOOC currently dominate the resource-rich country’s oil and gas scene.
French multinational Total is leading the push to boost western presence in Burma’s lucrative oil and gas industry after announcing plans on Monday to team up with Thai operator PTT’s Exploration and Production arm (PTT EP) to explore an offshore field.
Japanese firm JX Nippon Oil and Gas Exploration Corp will hold a 15 per cent stake in PTT EP’s Block M11 and Total E&P Myanmar will take 40 percent, while the Thai energy giant will remain the operator at 45 percent.
Currently, the token western presence is made up by Total, which has been in Burma since 1992, pre-dating international sanctions and operates the Yadana gas field as part of a consortium made up from America’s Chevron, PTT EP and the Myanmar Oil and Gas Enterprise (MOGE).
-Kate Kelly is a pseudonym for a journalist working inside Burma.

This article first appeared on the Democratic Voice of Burma website on 4 September 2012: http://www.dvb.no/news/energy-giants-gauge-burma%E2%80%99s-potential-ahead-of-tender/23587
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