YANGON – Myanmar’s state-owned enterprises (SOEs) involved in the extractive industries still lack transparency and need to reform to meet international standards, according to the Multi Stakeholder Group (MSG) tasked with implementation of the Extractive Industries Transparency Initiative (EITI), on Thursday.
Myanmar became a global EITI candidate in July 2014 but it has yet to gain full membership as it has not passed the validation process, which will start next month. The MSG is comprised of representatives of the government’s ministries of Natural Resources and Environmental Conservation, Electricity and Energy, the private sector and civil society groups.
In the two and half years since the first MEITI report was published in January 2016, which drew heavy criticism, the MEITI national consultation office has published second and third reports on extractive industries, namely: oil and gas, gems and jade, and other mineral mining and pearl farming, for the fiscal periods of 2014-15 and 2015-16, on June 28. The reports were dated March 2018 and MSG members said they plan to produce an additional forestry sector report next month, in July.
Daw Moe Moe Tun, a representative of the civil society sector, noted that one of the 21 recommendations laid out in the reports found that “Myanmar’s natural resource extractions are deteriorating.”
The reports were based on figures shared with MEITI by private companies and state-owned enterprises, she said.
“State revenues were lost due to long-running mismanagement and corruption. There are weaknesses in the provision of licenses, taxation and lack of legal procedures to monitor joint ventures between the government and private companies. Thus we also lost opportunities for locals to develop,” said Daw Moe Moe Tun, who is from the Myanmar Alliance for Transparency and Accountability (MATA), a national network of civil society groups and individual experts.
U Kyaw Thet, the deputy director of the Department of Mines, under the Ministry of Natural Resources and Environmental Conservation said that implementation of the recommendations made in the first MEITI report in January 2016 was ongoing while the suggestion made in the current second and third MEITI reports are being implemented already. U Kyaw Thet is also a member of the MSG and one of the speakers at press conference held Thursday to discuss the reports.
“We have been reviewing the 14 recommendations made in the first report at every MSG meeting and we have seen some improvements. Our take on the recommendations is not like showing no more interest [after the reports are published]. We are strictly adhering to our aims of creating good governance in the extractive industries. Therefore, all of us believe in the reports’ (recommendations) to reform [strategy] and find ways to improve the situation,” he told The Irrawaddy.
Military still dominates extractive industries
Daw Moe Moe Tun agreed the latest reports are more comprehensive than the first one, but said there are still large gaps in them. Although the government is following the recommendations, the MSG member highlighted that the main military-controlled businesses — Myanmar Economic Corporation (MEC) and Union of Myanmar Economic Holding Limited (UMEHL) —still lack transparency and accountability.
Military-owned firms control almost all of the mineral-mining operations, she said. From these firms, their revenue share was over 1.3 billion MMK. These figures were based on the military companies’ own templates and audit reports shared with MEITI.
“But our country’s weakness is our auditors can check only the accounts, not the performance. Both UMEHL and MEC are under the office of the commander in chief, so we have been asking whether the army should be involved in those businesses,” Daw Moe Moe Tun said.
In March, the Myanmar Center for Responsible Business (MCRB), a think tank, urged the government to develop mining policy and laws for sustainability in the mining sector.
The MSG had tried to reach out to three selected companies in the jade-rich Hpakant region to do assessments, but their effort was stymied as the Myanmar military, or Tatmadaw, did not give permission for them to travel to the region.
MOGE still the highest contributor of revenue, but discrepancies abound in “in kind payments”
Total revenue collected from the extractive companies amounted to 3,404.469 billion MMK (or 20 percent of state revenues) for the fiscal year 2015-16, according to the Central Statistical Organization, as cited in the MEITI report. The value of exports from the extractive sector amounted to USD 5,304.03 million and accounted for about 47.6 percent of the country’s total exports.
Total revenues from extractive industries were slightly higher in the previous fiscal year (2014-15), amounting to 3,408.193 billion MMK (or 20.6 percent of total state revenues). Its export value was USD 6,648.07 million and represented about 53.1 percent of the country’s total exports in 2014-15.
The oil & gas production and transportation industry remained the highest taxpaying sector for those two years. The Myanmar Oil and Gas Enterprise, a state-owned enterprise, controls and partially owns several of the main firms operating in the sector.
The revenues received from the oil and gas sector totaled 2,579.917 billion MMK (or 76 percent of state revenues) from 41 oil and natural gas productions companies (including pipeline transportation companies) in the 2015-16 fiscal year. Of the 76 percent, state-owned enterprises transferred to Other Accounts and to government agencies 33 percent and 43 percent of the total net receipts, respectively.
In the previous years, the same companies generated 2,882.206 billion MMK (85 percent) of revenues, of which 39 percent and 45 percent respectively were transferred to Other Accounts and government agencies.
In 2015-16, the MEITI report states, they “reconciled in-kind payments made by extractive companies selected in the scope with commodities received by government agencies and we note differences,” which were detailed in the report.
According to the report, in-kind payments of natural gas (for 2015-16) totaled 137,066 million scf (MMscf), however, in the government’s MOGE list, the income was listed as only 713 MMscf, implying 136,353 MMscf had disappeared.
In the previous fiscal year (2014-15), the difference was 129,638 MMscf as only 645 MMscf was listed in the MOGE data.
There was no information shared to MEITI to explain the discrepancy, and it was believed that two-thirds of the gas was taken by the military.
The environmentalist U Win Myo Thu said the government should have shared this information to help transparency and accountability.
“Apart from the military uses, we heard more than 40,000 million scf was lost due to damaged pipelines,” he said. The price for 1 million scf of natural gas is roughly USD 4,000, thus for two years, an estimated USD1.0 billion has disappeared from the income list.
For jade, there was also a discrepancy between the company-provided information and the government data of 426,554 kilogram in 2015-16. The government representatives in the MSG said that the jade and gold paid “in kind” was kept at museums.
MOGE and foreign debt
The MOGE’s offshore and onshore oil and gas extraction revenues represented 47.5 percent of the country’s total income. Even though MOGE is the highest revenue-generating sector, Daw Moe Moe Tun noted that its foreign loans also account for nearly half of the total loans and the majority are from China with an interest rate of 4.5 percent.
“Thus, we have to think about whether it is really making a profit. Also the MEITI report this time is not yet able to clearly provide details of the loans and payment of loans and interest,” she said.
According to U Than Htay Aung, an MOGE expert who serves as an MSG member from the government side, out of the eight foreign loans to MOGE from China, Japan, Thailand and India, three had already been paid back.
A Japan International Cooperation Agency loan for offshore oil exploration of USD111.732 million has a 30-year repayment period and Myanmar will have to start payment in January 2023.
For onshore oil exploration projects, MOGE received a USD80.51 million soft loan from China to be repaid between January 2013 to the end of July 2022.
Other Chinese loans for the Yadana-Yangon gas pipeline, Southeast Asia natural gas pipeline and Shwe offshore gas project, and the South East Asia crude oil pipeline project amounted to USD 1,654.454 million. The repayment terms for those projects are for 15 years and payment for the Yadana-Yangon gas pipeline began in 2015 with the latter two’s repayments beginning in 2016.
As of March 31, USD1459.639 million was still needed to pay the four Chinese loans, plus total interest of USD440.94 million, according to the government figures.
More revenue sharing from gems and jade sector
The revenue from gems and jade mining brought in 707.808 billion MMK (21 percent of the total revenue share from extractive industries to the state) in 2015-16, up from 387.029 billion MMK (11 percent) in 2014-15.
The revenue increases in 2015-16 came from 51 of 1,660 gems and jade-extraction companies, which paid taxes of more than one billion MMK. In the previous year (2014-15), MEITI’s reconciled data came from 72 companies, which paid taxes of more than 0.75 billion MMK to the government.
In the first MEITI report, just 11 companies participated in the transparency monitoring.
“Other mineral” mining operations, including gold, amber, rubies, copper, raked in 98.583 billion MMK (3 percent) of total revenues for the extractive sector, with 28 companies (out of a total of 1,038) paying taxes of more than 0.25 billion MMK in the 2015-16 fiscal year.
In the previous year, it was 124.848 billion MMK (4 percent) from 29 companies (of a total of 969) paying taxes of the same amount (more than 0.25 billion MMK to the government).
“Our work is on the right track and we want our cabinet leaders, other directors of the respective departments and the businessmen to be aware of the importance of EITI standards and to pay attention to the responsibility and accountability of the mining sector,” said U Kyaw Thet, pointing to the increases in of private companies and state-owned enterprises sharing data.
He explained the government reviewed the extractive companies to see whether they followed the environmental management plan (EMP), and those that violated the EMP had their licenses revoked. Therefore, from around 2,000 minerals mining companies in 2013-14 there are only 1393 in operation today.
Despite the number of mining companies sharing their financial information for MEITI reconciliation, by looking at the data, it is clear a handful of companies including state-owned enterprises and the military-owned firms dominate the extractive sector.
“We have to ask whether business is taking place in balance. It is time to share the data on resource extraction and the financial figures with the people, who are the original owners of these natural resources,” Daw Moe Moe Tun said.
“The state-owned enterprises do not meet international standards, as they are controlled, managed and monitored by themselves. For that reason, no legal action was taken. In contrast, many local people have been sued for many reasons,” she added.