Business

The Irrawaddy Business Roundup (April 23, 2016)

By Simon Lewis 23 April 2016

Investors Urged to Update Anti-Bribery Rules After Suu Kyi Order

After the new government issued new rules to civil servants on accepting gifts, an international law firm is advising its clients working in Burma to update their anti-bribery and corruption measures.

In one of her first acts as President’s Office Minister, Aung San Suu Kyi on April 4 issued new guidelines that bar government staff from accepting any gifts with a value over 25,000 kyats (just over US$20).

The order came after the National League for Democracy (NLD) put fighting corruption at the center of its campaign for the November 2015 elections. And in a sign that the new government is serious about tackling graft, the President’s Office this week issued a warning to a local media company for allegedly trying to hand a gift of 5 million kyats to a government official’s assistant during a Thingyan celebration in Naypyidaw.

London-based law firm Berwin Leighton Paisner issued a note on April 20 advising its clients to “take note” of the new guidelines.

International investors working in a “high risk” country like Burma should already have anti-bribery and corruption (ABC) measures in place, the firm said, especially those from Britain and the United States, which both have strict laws on foreign corruption that apply overseas.

However, the note said, “Given that the [new Burmese government] Guidelines contain a number of exceptions, a robust approach is recommended to avoid scenarios where a public official may avoid censure under the Guidelines but US or UK ABC legislation may still be engaged.”

Lawyers at Berwin Leighton Paisner urged foreign investors to “revisit and revise their ABC compliance policy” to take into account the new guidelines.

“Further, investors would be well advised to conduct or obtain proper and accessible ABC training for their local staff, suppliers and contractual counter-parties,” the note said.

“It would also be prudent to conduct appropriate levels of compliance due diligence on potential counter-parties before entering into any joint ventures or partnerships in Myanmar.”

Chevron Looking to Sell $1.3b of Burma Assets

Reuters reported this week that US oil and gas major Chevron has put its assets in Burma, estimated to be worth $1.3 billion, up for sale.

The newswire cited “banking sources familiar with the matter” and said the disposal would be part of a broader retreat from the company. With interests around the globe, Chevron may need to preserve cash as oil prices continue an extended slump due largely to a glut of supply from Middle Eastern oil producers.

Chevron was among the winners when the Burmese government issued a slew of offshore exploration blocks in 2014. After negotiations, the company signed a production sharing agreement with the government’s oil and gas company for the shallow-water Block A5, off Arakan State, in May 2015.

Chevron is also a minority shareholder in the Yadana and Sein offshore gas fields that are operated by French company Total and supply most of their gas to Thailand via pipelines. Reuters reports that Chevron’s production in Burma amounts to 117 million cubic feet, or about 2.2 percent of the company’s global gas output for 2015.

Analysts have previously warned that falling global oil prices could mean delays in converting recent exploration licenses in Burma into production deals. Production is wanted sooner rather than later to provide much needed funds to state coffers as the new government looks to address infrastructure needs and invest in public services.

But there may be interest in Chevron’s assets, particularly since Burma is seen as one of the world’s last largely untapped locations for conventional hydrocarbon deposits.

Reuters sources named Thailand’s PTT Exploration and Production and Australia’s Woodside Petroleum as possible buyers, who would likely want to take all three assets together. It also noted there could be interest from China and Japan.

Woodside, which did not comment to Reuters on the Chevron assets, has issued public announcements about two gas discoveries in the Arakan Basin in recent months and is not hiding its excitement about prospects in Burma.

The Australian Associated Press reported on Thursday that Woodside Petroleum Chief Executive Peter Coleman said the company was looking to “snap up” more assets in Burma while oil prices are low. Coleman offered few details, but promised more information on the company’s plans soon.

“The investor day in May will give a better line of sight to where we think commerciality in Myanmar will come from,” the AAP quoted him as saying.

New Investment Rules Could Help Agriculture: KPMG

Global auditor KPMG said this week that a recent amendment to Burma’s foreign investment rules could help the development of the country’s agricultural sector.

In a tax alert issued Thursday, KPMG gave a rundown to changes made by the Myanmar Investment Commission on March 21, before the new government took power.

Under the Foreign Investment Law, the MIC has the power to issue rulings on what economic activities foreign firms can perform, and what activities can only be performed by local firms or joint ventures.

The latest notification removed from the list of prohibited activities for foreign companies the manufacture of rubber, as well as the production and distribution of hybrid, high-yield and local seeds used to grow crops.

“The above removal of need for joint ventures [and thus potentially could be carried out by a wholly foreign-owned entity] for the above activities should bode well for the development of the agricultural sector in Myanmar,” KMPG said in the alert.

The alert also noted a change that allows joint ventures to produce and distribute vaccines, under certain conditions, and a change to the circumstances when foreign investment is totally prohibited.

The new rules state: “Economic activities … deemed to deteriorate the watershed or catchment protection forests, religious places, traditional belief, pasture land, shifting cultivation farms and water resources will now be prohibited.”

KPMG did not comment on the latter amendment, but other observers have noted the broad wording could cause complications for foreign investors.

ADB Hails Burma as ‘Fastest Growing Country in Asia’

The Asian Development Bank (ADB) is predicting that Burma’s economy will grow faster than any other in Asia in the coming year.

“Despite flooding that devastated one fifth of the country’s farm land, and moderating economic activity in the People’s Republic of China [PRC], Myanmar’s economy is expected to grow 8.4 percent in 2016 and early 2017, the highest rate in Asia and the Pacific,” the ADB said in a statement to mark the release of its 2016 Asia Development Outlook.

The ADB hailed relief efforts after Cyclone Komen and intense rains in July and August 2015 that wrecked about a fifth of Burma’s cultivated land and displaced more than 1.6 million people.

The bank also praised the economy’s resilience. “The storm did little to slow down the rest of the booming economy, with garment exports increasing by 28 percent to $2 billion,” the statement said.

“Natural gas exports slightly increased as well. Tourism was also a major driver of the economy with 4.7 million arrivals in 2015 with about 70% of visitors entering overland from neighboring countries. Spending by tourists rose by 19% to $2.1 billion in 2015.”

While it noted risks from the country’s ongoing conflicts, the continued reliance on natural resource extraction and vulnerability to bad weather, the ADB said the “prospects look sunny for the country,” predicting a healthy 8.3 percent gross domestic product growth in 2017.

IFC Provides $40m for Rangoon Container Port Development

The World Bank’s International Finance Corporation has provided $40 million in financing for the expansion of a privately owned port in Rangoon.

The loan is the first phase of $200 million of support the IFC has pledged to the Myanmar Industrial Port, which it hopes will expand the port’s annual handling capacity from about 300,000 containers (or 20-foot equivalent units) to 500,000 containers or more.

“The investment is IFC’s first in the transportation sector in Myanmar and is part of a broader strategy to help Myanmar do business more efficiently and more competitively, thereby unlocking the country’s potential for increased international trade and supporting job creation and economic development,” the IFC said in a statement this week.

“Myanmar’s container volumes are estimated to have increased by 90 percent over the last 3 years due to rapid growth in imports and exports following the government’s implementation of political and economic reforms.”

The Myanmar Industrial Port on the Rangoon River is operated by Myanma Anwa Swan A Shin Group, a family-owned local company headed by Capt. Ko Ko Htoo. The company built and began operating the port in 2003 with the blessing of the then-ruling military junta.

“IFC’s financing for MIP comes at a critical time in Myanmar’s development when transport infrastructure is urgently needed to realize the country’s growth potential,” Hyun-Chan Cho, IFC’s head of infrastructure and natural resources for Asia, said in the statement.

“The MIP loans will also help to catalyze investment by other private developers and financiers in Myanmar’s infrastructure sector for which long-term US dollar funding has not been readily available.”

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