Ethics of MOGE and Gas Money

By William Boot 11 September 2012

“We set high standards of performance and ethical behavior that we apply internationally … according to our core values of honesty, integrity and respect for people and to comply with relevant legislation and regulations.”

Words like these might well be sending a shudder down the corridors of the Myanmar Oil and Gas Enterprise (MOGE) as it grapples with pressures from some Western international oil companies for Burma to become more transparently open for business.

The statement is part of Shell’s business standards manifesto and appear to illustrate why Burmese Energy Minister Than Hay recently held back from offering dozens of potentially lucrative licenses to explore for gas and oil.

It was thought that more than 40 blocks in offshore territorial waters and onshore areas were going to be announced at the Myanmar Oil Gas and Power in Rangoon earlier this month.

That was before a ministry official declared that a bidding auction would be postponed following Western company calls for domestic industry reforms to match recent political changes in the country.

Companies such as Shell had called for a clear and open explanation of the bidding process, who will be involved and how the sector will be regulated.

Until the military regime moved off stage and political reforms began, virtually all licenses and deals went through MOGE, a well-known tool of the military. The state agency has been denounced by the US government and opposition leader Aung San Suu Kyi but continues to have a close hand in the industry.

The ministry has suggested that a new round of licenses for offshore and onshore exploration blocks could be offered by the end of the year once Burma’s regulatory process has been overhauled to meet Western standards.

However, industry analysts and Burma observers think it is over-optimistic to expect to be ship-shape by 2013.

“There’s going to have to be some pretty rapid change at MOGE otherwise I cannot see the ministry of energy being able to lay out its offshore blocks portfolio any time soon,” energy analyst Jeff Mead in Hong Kong told The Irrawaddy on Monday.

Others think the delay in offering blocks is a wise move for Burma’s economy in the longer term.

“Quite a few people have been suggesting Burma should have a moratorium on new block licenses to give the government time to make sure these projects are in the national interest, and that the country gets the best deal it can,” said the co-editor of Burma Economic Watch bulletin Sean Turnell, an economist with Australia’s Macquarie University.

“There’s no need to rush, especially since the revenue streams from these projects will be the basis of Burma’s fiscal future—funds to upgrade infrastructure, funds for improvements in health, education [and] also to provide Burma itself with the energy it needs.

“The old regime wanted to sell gas as quickly as it could to raise cash. The new one has a more important, but more complex agenda,” added Turnell.

The much-amended foreign investment law which was agreed by the Burmese Parliament on Sept. 7 will clarify some of the questions the oil businesses had during the Rangoon industry forum last week, but many others remain unanswered.

Western companies that attended the forum were frustrated by the lack of data relating to offshore blocks expected to be offered. MOGE was either unwilling or unable to provide technical answers to questions.

“It’s rather a Catch-22 situation because the government wants or rather needs the Western oil majors for the kind of investment in E&P [exploration and production] that’s needed and the majors want to move into Burma, but not at any price,” Mead said. “They are not willing to run afoul of a still-existing web of US constrictions relating to the military government era and they do not want to invest in blanks.”

MOGE has claimed that Burmese waters hold between 11 trillion and 22 trillion cubic feet, but these are largely unverified figures.

However, not all big international oil firms are squeamish about dealing with MOGE. In recent months, the state oil companies of Malaysia and Thailand—Petronas and PTTEP respectively—have signed exploration contracts, and France’s Total and Japan’s Nippon Oil agreed to buy shares in PTTEP’s large offshore gas prospect in the Gulf of Martaban.

Chinese state firms such as China National Offshore Oil Corporation and China National Petroleum Corporation are also working closely with MOGE.

Questions are still being asked by human rights NGOs about CNPC’s ethical standards towards workers and small landowners as it constructs 900-kilometre gas and oil pipelines through Burma.

“I think Western oil firms do care about MOGE—not necessarily because they are warm and cuddly institutions—but simply because they do have to exist within laws and activism back home,” said Turnell. “They do operate in ways that probably do not bear scrutiny elsewhere, but Burma has a profile on these issues that may not apply to other places.”

Business risk assessor companies have previously cautioned against linking up with MOGE.

Germany-based Transparency International still ranks Burma as one of the world’s most corrupt countries, while the UK risk assessor Maplecroft warned about the lack of institutional infrastructure back in May.

“Despite the growing but cautious enthusiasm amongst investors for an imminent return to Myanmar, businesses need to be aware that significant operational and strategic risks are likely to persist in the short term,” Maplecroft warned in a study.

On Sept. 8 the East Asia Forum, part of the East Asian Bureau of Economic Research, published an article by Turnell warning that Burma’s reforms “are fragile and contingent upon a few key individuals.

“They are also pitched into a business environment that bears all the scars of five decades of misrule: degraded infrastructure, rampant corruption and cronyism, severe capacity constraints in government and policy making bodies, residual human rights abuses and ethnic conflict, a dysfunctional financial sector, and a myriad of other obstacles to a smooth transition.”

These are sobering words for a global oil company with Shell’s nobly-worded ethics code.