The Irrawaddy Business Roundup (Dec. 12, 2015)

By Simon Lewis 12 December 2015

Adidas Plans to Source More Shoes from Burma

German sportswear and shoe giant Adidas is planning to ramp up sourcing from Burma as it struggles to with the rising cost of materials and rising wages in other sourcing destinations like China, according to comments reported by Reuters.

The newswire quoted Adidas head of global sourcing John McNamara in an article looking at the brand’s plans to cope with shrinking profit margins. He said he expected labor costs to rise by 11-15 percent each year across the countries from where Adidas sources its products, while the prices of cotton and nylon were also rising.

In response, McNamara was quoted saying, Adidas will source less from more expensive Chinese factories, while increasing orders to manufacturers in the cheaper labor markets of Indonesia, Vietnam, Cambodia and Burma.

“We see Myanmar as one of the last great sourcing markets for our type of product,” he said, predicting that 4 percent of Adidas’s shoe production would be in Burma by 2020.

Adidas announced in February this year that it would begin sourcing from Burma, following several other major brands that have entered the country following the relaxation of sanctions.

According to Adidas’s most recent supplier list published online, the brand sources from just one factory in Rangoon, owned by Shyang Jhuo Yue Co. Ltd. But Taiwanese manufacturer Pou Chen in October reportedly discussed plans to open a factory in Rangoon that would employ 10,000 workers and produce shoes for Adidas.

Deal Signed on $300M Mandalay Gas Power Plant 

Singapore’s Sembcorp Utilities will invest in and develop a 225-megawatt gas-fired power plant in Mandalay Division after it signed a memorandum of agreement with the Burmese government this week.

The company is part of the conglomerate Semcorp Industries, which is involved in the energy, water and marine sectors. Sembcorp Utilities was awarded the tender to develop the power plant in Myingyan in April.

The group’s executive vice president and head of business development and commercial, Tan Cheng Guan, on Monday signed the agreement with the Burmese government’s Department of Electric Power Planning director general Khin Maung Win, according to a statement.

The World Bank Group’s International Finance Corporation is considering financing the project to the tune of $45 million.

Sembcorp takes an 80 percent stake in the $300 million project, with local partner MMID Utilities taking the remaining shares.

MMID Utilities is a Singapore-incorporated company about which little information is publicly available. It appears to be part of Mandalay Myotha Industrial Development, a group that operates Mandalay’s main industrial zone and is also developing a a new industrial park and port.

According to its website, the group is chaired by Royal Hi-Tech Group founder Aung Win Khaing, a Burmese citizen of originally from the Kokang region.

Sembcorp claims the Myingyan plant will be Burma’s biggest gas power station. It is expected to power the government-owned Myingyan steel mill using gas from the Sino-Burmese natural gas pipeline. The plant is expected to begin operating in 2018, and will supply power to the state-run Myanmar Electric Power Enterprise through a power purchase agreement that will run for 22 years.

Hong Kong Company Signs Deals for Fast-Track Gas Power

 While the Myingyan steel mill waits for its new permanent source of power (see above), the government has contracted a Hong Kong-based firm to provide a short term solution.

VPower Group announced this week that it will build a “fast-track” power plant plant close to the mill in Mandalay Division, as well as ramping up its output at another facility in Arakan State.

In a press statement, VPower said it had signed two new contracts with Myanmar Electric Power Enterprise to set up gas-powered installations that will each provide power to the grid for five years.

“The 133MW power installation in Myingyan will power the state-owned steel mill,” the statement said. “Securing a reliable supply of electricity is key to operating the electric arc furnace economically. This latest power plant will take into account the voltage fluctuations and a first technical challenge of its kind for VPower. It will also connect directly to the existing 230kV lines located close to the mill.”

VPower said it previously established a 45MW power plant in Kyaukphyu, Arakan State, that was brought online in just 120 days. Under a new agreement, it will double to size of that installation.

“Both distributed power projects will be constructed in parallel and is set to going into operation in March 2016,” it said. “Running on natural gas, the two plants will have the advantage of much lower emissions and better efficiency than that of traditional fuels, and will stand out as the more cost-effective power solution.”

Land Leads Business and Human Rights Concerns

Land has been identified as the top business and human rights issue for Burma in 2016, according to a survey, which also noted the importance of the climate for human rights defenders and public participation in business.

A press statement from the Myanmar Center for Responsible Business said that an online survey of “Myanmar-connected stakeholders” identified the three areas as part of a global survey by the Institute for Human Rights and Business released to coincide with International Human Rights Day on Thursday.

Among the three issues identified as important for Burma in the coming year, “Land leads the list,” the statement said.

“Myanmar is still coming to terms with opaque land practices that characterised the pre-2011 military government for decades,” it said.

“Since then, some abuses have been remedied, but many others remain. A draft Land Use Policy discussed in 2014-2015 is still to be adopted, and once it is, new and revised laws will be needed. These will have to address legal and governance gaps in Myanmar on complex and sensitive issues such as resettlement and indigenous peoples.”

The survey also highlighted the harassment and arrest of land rights activists, among other human rights defenders, as a key concern, it said.

Finally, the poll said that with a new National League for Democracy-led government set to take power next year, the country was faced with “a range of challenges and opportunities” to strengthen public participation in responsible business.

“The draft environmental impact assessment (EIA) procedures, for example, should make public engagement and full disclosure of information compulsory in many projects; however, they have yet to be promulgated,” it said. “Civil society also needs support to hold companies to account, and ensure that development strategies benefit local communities.”

Texan Firm Buys into Burmese Booze Business

TPG Capital, a Fort Worth-based private equity group formerly known as Texas Pacific Group, has bought a 50 percent stake in Myanmar Distillery Company, according to a report.

The report from the Wall Street Journal, said that the American company had paid somewhere between $100 million and $200 million last month to “international investors” for half of the Burmese alcoholic beverage producer.

Myanmar Distillery Company is part of the International Beverages Trading Company Limited, and produces the local “Grand Royal” whiskey brands, “Royal Dry Gin” and the “Jazz” range of wine coolers at its plants in Rangoon and Mandalay.

The Wall Street Journal also said that Diageo, the world’s largest maker of spirits, had “explored the possibility of buying Myanmar Distillery last year but decided against it due to worries about compliance and the regulatory environment,” citing a person familiar with the matter. The report added that Paul Walsh, Diageo’s former CEO would be the co-chairman of Myanmar Distillery’s board.