Burma Business Roundup (November 8)

By William Boot 8 November 2014

Business Risk Doubts Raised about Hanthawaddy Airport Deal

Concern about the long-term economic viability of Burma’s planned Hanthawaddy Airport and other large airports in the country has been voiced by a business risk analysis company.

The award of the Hanthawaddy contract to a Singapore-Japanese consortium was the best outcome because it’s backed by a Japanese government development assistance loan, said Business Monitor International (BMI).

“That said, this project award has not reduced our long-held concerns about the financial viability of Myanmar’s large-scale airport projects,” said BMI. “Our concerns about the financial viability of Myanmar’s airport projects not only stem from macroeconomic considerations but also from the deficiencies in Myanmar’s regulatory environment.”

BMI noted that the consortium had secured the Hanthawaddy project without asking for any government guarantee.

“This means that the consortium might not receive a satisfactory or any compensation from the government if it experiences government risk, e.g. contract termination before project completion, or project delays.”

The Hanthawaddy contract was awarded to joint venture made up of Yongnam Holdings and Changi Airport Planners & Engineers (CAPE), both of Singapore, plus JGC Corporation of Japan.

Yongnam and JGC are engineers and infrastructure construction specialists.

The contract award “highlights the importance of having deep access to project financing when taking on infrastructure projects in Myanmar,” said BMI of Britain.

Petrochemical Industry Start-Up ‘Needs Foreign Finance, Technology’

Burma should develop a petrochemical industry but will need foreign investment and technical know-how to get started, a chemical industries conference in Rangoon heard.

The proposal was made at the Regional Chemical Management Forum that included company representatives from Sweden, Japan, China, Thailand, Sri Lanka, Cambodia, Laos and Vietnam, said Myanmar Business Today.

At present, Burma has no significant chemical or petrochemical industries, but it potentially has the feedstock if new oil and gas exploration blocks yield new reserves.

“Ye Mon, managing director of the Paper and Home Utility Industries of the Ministry of Industry, stressed the need for investment, technology exchange, standardization of procedures and chemical management for the development of a petrochemical industry,” Myanmar Business Today said.

The forum was organized by the Swedish Chemicals Agency, a Stockholm government body which promotes “responsibility for ensuring that companies and the society at large conduct chemicals control in an acceptable manner.”

Proposals by a Thai developer to build a large petrochemicals complex at Dawei on Burma’s southeast coast were scuppered when the Naypyidaw government vetoed plans for a large coal-power station to fuel it. Some opponents saw the plan as a way of taking Thailand’s contentious chemicals industry abroad because of public opposition against expansion of the Map Ta Phut industrial estate south of Bangkok.

Naypyidaw and Thai government agencies in Bangkok continue to discuss the possibility of creating a special economic zone at Dawei.

Coal to Fuel Much of Burma’s Electricity Growth: Report

Most of 12 coal-fuelled power stations planned by the Ministry of Electric Power to help boost Burma’s electricity supply will be in the greater Rangoon area and Tenasserim Division, a report said.

Four coal-powered plants are earmarked for the greater Rangoon area and four for Tenasserim bordering Thailand, Bangkok’s The Nation newspaper quoted the Ministry of Electric Power as saying.

The coal plants would have a combined electricity generating capacity of almost 13,000 megawatts, which is nearly three times Burma’s existing national capacity.

The Nation identified three major Thai firms as being interested in building and operating large coal-fuelled plants in Tenasserim Division– Ratchaburi Electricity Generating Holding, oil giant PTT and the Electricity Generating Authority of Thailand (EGAT).

It’s not clear where all the coal for so many power stations would come from since Burma’s has only a small coal-mining industry.

The coal-powered plants would make up nearly half of an overall electricity expansion program over the next 20 years, The Nation quoted Myint Oo, a director at the Ministry of Electric Power, as saying.

Other energy resources likely to fuel electricity growth will be mostly in hydropower dams and natural gas.

Bigger Fines Planned for Companies Avoiding Tax Liabilities

Tax evaders who are caught in Burma will be liable for bigger fines from this year, the Finance Ministry said.

The warning was made at a business forum by Minister of Finance Win Shein.

Burma has one of the lowest tax rates in Southeast Asia but evasion is a “tradition,” the head of one large Burmese firm was reported by The Myanmar Times to have said.

It might be wise to offer businesses “incentives” to pay taxes, the chairman of construction firm Taw Win, Ko Ko Htwe said.

“It is wise to incentivise firms to pay taxes instead of simply levying penalties, as there is a deeply ingrained habit of avoiding taxes in the business community.

“Habits are unlikely to change in a day. It’s a large tradition to avoid taxes, even for officials, and changing minds will take time,” Ko Ko Htwe was quoted by the newspaper as saying.

Rising Costs, Wages May ‘Push Thai Factories Into Burma’

Burma is one of three countries where Thai businesses are considering relocating manufacturing operations because of rising costs at home, the Federation of Thai Industries (FTI) said.

Firms are relocating abroad because of cheaper labor and lower operating costs, the FTI chairman Supant Mongkolsuthree told a business seminar in Bangkok.

They will favor Burma, Cambodia and Laos, he said, blaming wages, power bills and communications costs, all of which are increasing.

Thailand is also suffering from a labor shortage in the manufacturing sector which is likely to worsen if improving conditions in neighboring countries encourage migrant workers to return home, the Bangkok Post quoted the FTI saying.

“The [labor] problem will get very bad over the next three to five years because foreign workers will return to work in their home countries to enjoy the improving economies,” FTI vice chairman Vallop Vitanakorn said.

The Thai military government has proposed creating special economic zones in border areas which would allow migrant day labor to cross and work in factories. The first of these is earmarked for Mae Sot opposite Burma’s Myawaddy.