Myanmar’s energy sector needs reforms

PipelineIn the wake of sound domestic growth, Myanmar’s energy sector is firmly catching international attention due to its huge potential. However, although the country has abundant energy resources and the government has committed itself to an attractive foreign investment law as well as a tax exemptions regime, Myanmar needs deeper economic and political reforms that could protect investments and build the infrastructure needed for the sector to take off.

Strategically located between China and India, two of the world biggest energy consumers, Myanmar has abundant energy resources, particularly hydropower and natural gas. According to the Asian Development Bank (ADB), in fact, the hydropower potential of the country accounts more than 100,000 megawatts, while its hydrocarbon reserves, principally natural gas, are estimated to be 11.8 trillion cubic feet.

With this volume, Myanmar holds the 34th position in the global reserves ranking and it is one of the five major energy exporters in the region. Natural gas is also Myanmar’s most important official source of export earnings and the sector accounts for a third of total foreign direct investment in the country.

Although the sector started to attract a considerable international investments flow since the approval of the new investment law in 2011, Myanmar still lacks an effective legal framework that could bring investment and technology to the country.

In fact, as Mr U Myint, chief economic adviser to the President Thein Sein, pointed out, “unless Myanmar’s own policy frameworks are robust and reliable, the country needs deep macro-economic policies and institutions as well as an effective taxation regime, if Myanmar wants to attract foreign investors”.

Myanmar’s Minister of Energy Than Htay recently stated that Myanmar “welcomes investors throughout the world who are interested in investing in the Myanmar oil and gas sector,” confirming his commitment to transform the country into a member of Extractive Industries Transparency Initiative, which aims to improve the transparency practices in the sector bringing consequently new foreign investment flows. He also added that “over 100 oil and gas investors, including US-based Chevron and ConocoPhillips, have been carrying out talks with Myanmar authorities”, showing that the international commitment to Myanmar energy sector “is a reality.”

Nevertheless, the main fear, as expressed by Stephen Groff, Vice President of the ADB for South Asia, is that “Myanmar’s energy sector has suffered from decades of under-investment, and only one in four people currently have electricity access”. In addition to that, even though the government has deeply committed to economic and political reforms, it could not apply the rule among all its territory.

However, the government is moving to the creation of free trade zones where it can assure investment protection and favourable tax regimes, and it is drawing the new national energy policy framework which identifies four main goals: energy independence, wider use of new and renewable sources, energy efficiency and conservation, as well as the promotion of alternative fuels.

The government’s commitment and the strong international interest are two of the main ingredients for the sector’s future success.

One drawback is that in Myanmar the bulk of natural resources are located in ethnic minority regions that during decades have been seeking autonomy from the central government. And this could provoke political frictions within the country.  In addition to that, Myanmar needs to build a specialised human capital that could support the sector development.