Joint Ventures Could be Key to Development Success

 Joint ventures could be key to development success

The Myanmar Times

20 August 2012 

By Victoria Bruce

Myanmar’s oil and gas sector opens up to foreign investment, incoming firms will need to team up with local joint venture partners to tap opportunities in the lucrative industry.

An influx of international firms, bringing with them new techniques and technology, could boost the local industry and many Myanmar firms are jostling to team up with

international partners, industry experts said.

Some big industry names such as Malaysia’s Petronas and Thailand venture PPTEP rose to global prominence through joint ventures, said an executive from American drilling services firm Weatherford. “Most National Oil Companies in Asia get foreign firms to invest by means of a Production Sharing Contract (PSC) – which is an elegant name for a joint venture,” the executive said.

“Joint ventures are good for the local industry and Weatherford is all for making the local industry stronger and broader,” he said. “Petronas, Pertamina, PTTE P and PetroVietnam all grew to what they are today through the PSC mechanism, so in that way one could conclude

that joint ventures with local partners has been a stirring success,” the Weatherford executive said. 

Energy firms are looking at opportunities to enter Myanmar's offshore oil and gas fields. Photo: Internet

 Myanmar’s four big offshore ventures in the Yadana, Yetagun, Shwe and Zawtika gas fields are held by consortiums of heavyweights, such as France’s Total, America’s Chevron

and Thai firm PTTE P’s joint venture partnership with MOGE for the Yadana project in Myanmar’s south.

And while Myanmar energy firms have a long way to go before they reach heavyweight status, pairing up with international firms could provide great opportunities to build

their knowledge and expertise in the burgeoning industry.

“There are tremendous opportunities for technology and knowledge transfer,” said U Moe Myint, chief executive officer of local oil and gas exploration firm MPRL. “I very much welcome the Ministry’s directive in having foreign investors to partner with local companies in order to qualify for onshore and offshore bidding,” U Moe Myint said. 

Multinational firms such as Total, which has been operating in the country since 1992, frequently offer training programs to joint venture partners and contractors, thus ensuring knowledge transfer is not restricted to local employees, the company said. “TE PM has … worked closely with its contractors and with MOGE in training personnel and helping them to gain new experience and access to cutting-edge technology and modern management methods,” said Namita SHAH, General Manager of Total E&P Myanmar.

There are now more than 60 local companies registered with the Ministry of Energy which can act as local partners in joint venture arrangements with foreign firms, an official

from the Myanma Oil and Gas Enterprise told The Myanmar Times. 

Previously foreign firms could enter the industry with 100 percent foreign ownership, the official said however the requirement to take a local partner, on top of a production sharing contract with MOGE, has been in place since President Thein Sein’s government came to power in late 2010.

Privately owned local firm Parami Energy, part of Parami Group of Companies, is keen to join forces with international partners and learn from their expertise, said the company’s chief executive officer and president, U Ken Tun. 

Joint venturing with reputable foreign firms is a good way for Parami to expand further into the lucrative oil and gas sector, U Ken Tun said, adding established foreign firms could provide new and improved technology as well as knowledge and expertise.

“New technology, capability and reputation are the three most important things a foreign partner can bring,” U Ken Tun said. “There are many Myanmar firms keen to learn how to improve their business standards and practices and they can do this through engagement with a reputable foreign partner.” 

Parami recently signed a Memorandum of Understanding (MOU) with Russian-Vietnamese venture Vietsovpetro to bid in the upcoming international tender and if they are successful in winning a block, Parami hopes to become the operator and majority shareholder. The company is also the minority partner of PSC-I block in the Ayeyarwady Region in Southern Myanmar, which it won with Indian firm Jubilant Energy in last year’s onshore bidding round.

Dr Aung Thura, chief executive officer of local research and consultancy firm Thura Swiss said the joint venture model was a government policy to ensure that local companies gain in technical knowledge and expertise and can have their share in the oil and gas industry.

“Government policies to bolster the local industry are normal in many countries, especially in the oil & gas industry,” said Dr Thura, adding many countries in the Middle East have more protected markets than Myanmar. 

“Nevertheless, I don’t think that it is necessarily a disadvantage for foreign companies to form a joint venture with a local company. If the foreign company finds the right partner, the joint venture will benefit from local experience and a good network,” Dr Thura said. 

And choosing the right joint venture partner may pose a challenge for many foreign firms, since little is known about the background of the myriad of local firms operating in Myanmar’s energy sector.

Although Myanmar’s Ministry of Energy has more than 60 local companies on its books which could act as local partners, experts say big name multinationals will prefer to partner with well-known, reputable local firms to ensure compliance with international law and to guarantee they don’t fall foul of sanctions requirements.

American firms in particular  need to do their homework and pay close attention to US compliance requirements, such as ensuring their local partner does not have links to individuals on targeted sanctions blacklists. 

“In terms of dealing with Myanmar business partners, I would advise foreign investors to perform their technical, legal and accounting due diligence carefully and thoroughly,” said U Moe Myint from MPRL. “However, it is imperative from a long term strategic partnership point of view for companies to align with Myanmar business partners with a proven track record, preferably in the oil and gas sector, and if not, with companies which have transparent and successful track record of managing their business,” he said.

The US Government maintains a list of individuals and companies with close links to Myanmar’s former military regime and American firms are forbidden to engage with these entities. 

US heavyweights tipped to be scoping out opportunities in Myanmar include operators Chevron, ExxonMobil and ConocoPhillips, as well as drilling services companies

Weatherford, Halliburton and Schlumberger, industry insiders said.

“Foreign oil companies that are considering operating in Myanmar are required to partner with a local company and this demands a thorough due-diligence process by US companies,”  aid Dr Aung Thura, chief executive officer of Myanmar research and consultancy firm Thura Swiss. 

Incoming firms can greatly mitigate any reputational, financial and legal risks with the right due diligence, Dr Thura said. 

“We would advise them to contact a local company (like Thura Swiss) that offers a due-diligence not only on financial matters but also on compliance issues and reputation of possible partners,” Dr Thura said. 

The longer a local firm has been operating in Myanmar, the greater the risk of them having links to the international government blacklists, Dr Thura explained, noting Myanmar was only recently emerging from a strictly regulated business environment under the former military government.

While experts agree joint ventures add an extra element on risk to any project, thorough due diligence will assist in mitigating these risks and increased competition in the oil and gas industry will ensure that over time, as Myanmar continues to open up to foreign investment, the country’s best firms rise to the top.

This article first appeared in the Myanmar Times "Energy Spotlight" supplement on 20 August 2012: http://www.mmtimes.com/2012/feature/640/energy2012.pdf