Business

Burma's Looming Oil/ Gas Auction Could Pit Energy Giants Against Suu Kyi

By Simon Roughneen 21 June 2012

RANGOON—With Western sanctions suspended or removed in response to recent government reforms, Burma’s lucrative oil and gas sectors could soon see a rush of bids from Western companies, despite warnings from opposition MP Aung San Suu Kyi about graft in Burma’s state-run energy firms.

The international bidding process for 25 offshore oil and gas blocks will take place “in two or three months time,” according to Aung Kyaw Htoo, the assistant director of the Energy Planning Dept. at the Ministry of Energy.

However the auction could pit Western energy companies against National League for Democracy (NLD) head and de facto parliamentary opposition leader Aung San Suu Kyi, who, though calling for greater Western investment in Burma, last week issued a prohibitive-sounding warning about Burma’s state energy company MOGE, with which Western investors in oil and gas will have to do business in Burma, likely through joint ventures.

Speaking at the International Labour Organisation (ILO) annual conference in Geneva, Suu Kyi said, “The Myanma Oil and Gas Enterprise [MOGE] … with which all foreign participation in the energy sector takes place through joint venture arrangements, lacks both transparency and accountability at present.”

Saying that Suu Kyi could try reforming MOGE through Burma’s legislature, some US lawmakers are trying to prevent US companies from investing in Burma’s oil and gas sectors—for now at least—despite the US suspending sanctions on Burma on May 17.

“I urge the [US] administration to refrain from issuing waivers at this time for new US investment in Burma’s oil and gas industry until Aung San Suu Kyi’s concerns with MOGE [Myanmar Oil and Gas Enterprise] are sufficiently addressed,” said Arizona Republican Senator John McCain last week.

In recent years, Burma’s government has relied heavily on the energy sector for hard cash, funding the country’s army. Investment has come largely from Asian firms, though US-based Chevron and France’s Total have stakes that pre-date sanctions in the Yadana gas project sending gas to Thailand. Competition for Burma’s oil and gas reserves is expected to intensify as foreign companies move in on a sector long closed-off due to Western governments imposing economic restrictions on the Burmese government in response to human rights abuses in Burma.

Asked his views on Aung San Suu Kyi’s comments about MOGE, Aung Kyaw Htoo in turn refused to take the bait, saying, “I am not a mandated person for the Ministry of Energy regarding the political aspect.” He was speaking to around 300 local and foreign business people attending the New Myanmar Investment Summit 2012, organized by Singapore-based CMT and taking place in Rangoon on June 20-21.

“There are quite a number of places both not so explored or unexplored,” said the official who outlined that joint venture opportunities would arise not only in oil and gas extraction, but in related work such as shipping, recruitment and machinery. “There will be opportunities for cooperation across the Myanmar petroleum sector,” he said, using the short form for the Republic of the Union of Myanmar, the government’s name for the country.

However, tying in to Suu Kyi’s concerns about MOGE, oil and gas investment in Burma has long been blighted by concerns about human rights abuses and corruption. NGOs allege that unknown billions of dollars in earnings from oil and gas have been siphoned off into foreign banks—a process abetted by Burma’s old dual exchange rate, which meant that the government could downplay real earnings and hide any embezzlement.

But that old dual system has been scrapped, one of numerous key reforms needed to spur economic growth and attract foreign investment. A new foreign investment bill is due to be debated in parliament over the summer and is expected to be passed into law before autumn.

“I think it is going to be finalized next month,” said Than Lwin, the deputy chairman of Burma’s Kanbawza Bank, referring to the draft investment code.

The law, when it comes into being, will be part of Burma President Thein Sein’s “second wave” of reforms which he says will be enacted over the coming year and which the government hopes will triple the size of the country’s economy by 2016.

Part of the plan, it seems, involves a move away from energy-based investment and toward other job-intensive sectors in manufacturing and tourism. Burma’s energy minister Than Htay told the World Economic Forum in Bangkok on June 2 that “the government wants to replace resource-based foreign investment with production based investment,” a plan that Aung San Suu Kyi has since backed in various public addresses during her trip to Europe.

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