‘Time for an Energy Boost’
By Kyaw Hsu Mon 28 July 2014
The Parami Energy Group of Companies is a leading local provider of services to oil and gas companies operating in Myanmar; but, as CEO U Pyae Wa Tun (who is also known as U Ken Tun) is quick to point out, local firms account for a mere 5 percent of investment in the country’s crucial energy sector. This needs to change, he says, because it is costing the government much-needed tax revenue. As he tells The Irrawaddy’s Kyaw Hsu Mon, Myanmar needs to implement policies that will make it less dependent on foreign companies and put development of its energy sector on a more sustainable course.
Question: What are the major operations of the Parami Energy Group of Companies?
Answer: We provide services to foreign oil and gas exploration companies such as Daewoo, PTTEP, Petronas and Total, which in recent years have invested a total of at least US$300 million a year in Myanmar.
Q: How many local firms are working in the energy sector?
A: There are around 20 registered companies, [but only 10 are really active]. What I’ve seen, however, is that most only provide transportation and catering services. This really bothers me, because Myanmar has been in this business for a very long time. This country has the oldest continuously producing oilfield in the world [Yenangyaung in Magway Region], which has been in operation since the 18th century. I always mention this long history to our foreign partners, because they think Myanmar is technically deficient and has many restrictions for foreigners.
In fact, compared to many other countries, it is relatively easy for foreign companies to work here. As long as they abide by the rules of their partnership with the [state-run] Myanmar Oil and Gas Enterprise [MOGE], they are free to take their profits out of the country if they discover oil or gas.
As you may know, MOGE discovered the Yadana offshore field, but handed over operations to Total because it didn’t have the money to develop the field itself. This [lack of capital] is why foreign companies control 95 percent of Myanmar’s energy sector.
Q: Why can’t local companies get a larger share of the sector?
A: We could if we worked together more closely with the foreign companies. They could share their technology and we could provide our local knowledge. That’s how we [Parami] have survived in this sector.
In 2012, foreign energy companies spent $1 billion in Myanmar, and as more enter the country, that is expected to rise to $5-6 billion a year in the near future. Myanmar’s GDP is around $60 billion, so that means 10 percent of GDP will be from foreign investment in the energy sector alone.
Q: Are you saying that foreign companies exert an inordinate influence over the economy?
A: Yes, because local firms are so weak. It’s the same in the telecoms sector, where two big foreign telecoms companies have been given licenses to operate in Myanmar. In the energy sector, foreign companies are not just doing exploration and production, but also providing services. There should be a policy to prevent foreign companies from harming local companies that provide services in this sector. That is the government’s responsibility.
In Malaysia, for example, the government told foreign companies that they have to work with local firms and share their knowledge and technology with them. The government needs to have a sustainable energy policy, and must ensure that there is more of a win-win situation for local and foreign investors.
Q: Should the government favor local companies?
A: It has to be win-win. The policies have to benefit both the local companies and the foreign companies—and the local society, too. If only local companies benefit, they will be accused of being cronies; if only the foreign companies benefit, it will be hard for local companies to provide jobs to local people.
Q: Who are your major foreign competitors?
A: There are four big companies in the oilfield services sector—Baker Hughes, Halliburton, Schlumberger and Weatherford. Then there are also regional players. Drilling an oil well typically involves the services of about 40 companies, providing everything from catering and lodging to equipment and ship rentals.
Q: Have you tried to produce oil or gas yourself, together with the MOGE?
A: We’re working on some onshore blocks in Hinthada Township [in Ayeyarwady Region] with an Indian company now. The Indian company has a 77.5 percent share, and we’re investing the other 22.5 percent.
They’re the main operator, and we’re working with them.
Q: Do you think local energy firms will be able to survive if, as you say, their share of investment in the sector is just 5 percent?
A: I don’t think it will hurt local companies if they don’t get a larger share. Even now, they can make $50 million a year, at 5 percent of $1 billion. If that increases to $5 billion, they’ll get $250 million.
But if their share doesn’t increase, the biggest loser will be the country. The more we [local companies] make, the more we pay in taxes.
If we could eventually get 30-40 percent of the market, the government would earn a lot more in taxes. That’s why the government should promote more local involvement in the energy sector through better policies.
This article first appeared in the July 2014 print edition of The Irrawaddy magazine.