Pressure Grows to End Tainted State Agency’s Role in Oil and Gas

By William Boot 4 July 2012

The Burmese government’s quest for big-named international oil companies to invest in developing the country’s still largely untapped offshore gas and oil potential could be stymied unless it shuts down its own regulatory agency.

The Myanmar Oil & Gas Enterprise (MOGE), a tool of the army generals who ran Burma and controlled revenue resources, is tainted and at the very least in need of a top-down detoxification.

That’s the view of a growing number of international organizations and industry opinion after opposition leader publicly Aung San Suu Kyi declared that MOGE remained a murky, unaccountable state agency despite President Thein Sein-led political and economic reforms.

As the Ministry of Energy prepares for a second high-profile international forum in Rangoon in eight weeks, at which it plans to offer 40 or more new exploration and production licenses, America’s biggest business lobbying group admitted that Suu Kyi’s MOGE comments effectively stopped investment in the sector—at least by US companies.

She had set up a “de facto investment ban” until MOGE was removed from the equation or radically and swiftly reformed, said the US Chamber of Commerce.

The expected new US ambassador to Burma, Derek Mitchell, has also voiced concerns about the continuing presence of a tainted MOGE at the center of new developments in oil and gas, the Associated Press reported from Washington.

And a leading US human rights campaign organization, EarthRights International (ERI), said that although Burmese “do want renewed Western investment, not all investment is equal.”

“When it comes to extractive projects it may be better to wait for further political reform before proceeding,” commented ERI’s regional campaigns director, Paul Donowitz, in a June statement.

These negative comments will not help the two-day international oil and gas promotional forum planned by the Energy Ministry for September 4-5—billed as the 2nd Myanmar Oil, Gas & Power Summit.

The organizers are still putting on a brave face this week, saying in a promotional website, “There has never been a better time for you to come to Myanmar and observe for yourselves the opportunities in the oil & gas sector.”

But if that’s the case, say industry specialists, why is the Energy Ministry holding a second “summit” so soon after the first one, last March.

“We keep reading about Myanmar [Burma] being this region’s fastest-growing economy and the last frontier for new discoveries, etc. However, there is still a lot of caution in the oil extractive sector,” Bangkok-based energy industries analyst Sar Watana told The Irrawaddy on July 2. “A number of exploration licenses offered almost one year ago have not been taken up. Big companies from the Western countries are fighting shy of the MOGE.

“They want to know if this government agency is going to still be closely involved in all new contract work, or is it going to be disbanded or restructured soon. These are questions we don’t seem to be able to get answers for, yet after Suu Kyi’s comments the game for MOGE has certainly changed.”

Forum co-organizer the Centre for Management Technology (CMT) says oil companies and associated equipment suppliers should attend the September gathering “to meet the decision makers, key officials from the Energy Ministry, electric power operators, and representatives from Myanmar national companies.” However, CMT declined to say whether MOGE managers would also be present, or what role the agency would continue to have.

“We have not finalized this current event schedule yet,” CMT says.

Another civil rights NGO, Arakan Oil Watch, voiced concerns about MOGE’s continuing presence at the heart of the gas business even before Suu Kyi’s warnings to Western businesses.

“Although a new ‘civilian’ government is now in place, under Burma’s new constitution the military remains firmly outside the law and beyond civilian control,” said Arakan Oil Watch.

“The role of military companies in Burma’s economy and in accessing and managing Burma’s massive oil and gas revenues remains unknown and regulated. There is an urgent need for Burma to manage oil and gas revenues with greater transparency and accountability,” Arakan Oil Watch wrote in a report on the industry—“Burma’s Resource Curse”.

“Corporations should refrain from any new investments in the oil and gas sector until legitimate laws and mechanisms to implement proper protection of human rights and the environment, as well as ensuring revenue transparency, are established and functioning,” the study said.

Yet the widely called for reform of the country’s financial system, of which MOGE is a part, seems a long way off.

On a visit to the Central Bank’s headquarters in Naypyidaw last week, Reuters reported that there was a clear lack of both skilled staff and modern technology.

The news agency said many desks were empty and deputy central bank governor Nay Aye admitted he lacked trained people. “The staff shortage is not just a problem at the Central Bank but also at many other institutions in our country,” said Nay Aye.

The Asian Development Bank’s chief representative in Burma, Craig Steffensen, last week cautioned that the government’s push for change was “getting to the point where they are overwhelmed.”

Meanwhile, civil rights organizations such as ERI continue to call for full disclosure by MOGE or the Thein Sein government of the still-secret profits from existing major offshore gas fields—Yadana, Yetagun and Shwe.

Where will the money go from the lucrative contract signed by MOGE with the China National Petroleum Corporation for the 200 billion cubic meters of gas to be pumped from the Bay of Bengal Shwe field via a pipeline into China? How much did the Chinese pay?

“No companies have disclosed to the people of Burma what they have paid for the rights to extract petroleum,” ERI’s Donowitz said. “Just what are they and the government hiding?

“Clearly, the public has a right to know where these payments have gone.”