The Irrawaddy Business Roundup (Sept. 26, 2015)

By Simon Lewis 26 September 2015

IFC to Advise Burma on Environmental, Social Guidelines for Dams

The World Bank’s International Finance Corporation (IFC) has signed up to advise the Burmese government on its controversial plans to build more hydropower dams.

The IFC said in a statement this week that it would provide “advisory services” to Naypyidaw to improve the government’s management of the environmental and social risks of such projects.

Campaigners are concerned that large-scale dams are being proposed without the impacts being properly assessed and before consultation with local communities has taken place.

“The World Bank Group wants to play a pivotal role in supporting the development of a sustainable hydropower sector, as part of its efforts to help Myanmar achieve a balanced energy mix,” Vikram Kumar, IFC Myanmar resident representative, said in the statement.

“We will incorporate international best practices while assisting the government in developing environmental and social guidelines for the hydropower sector. We will also encourage greater collaboration between the public and private sectors as well as civil society so that developers can help shape policy and contribute to improving environmental and social risk management in Myanmar’s hydropower development.”

The IFC, the World Bank’s private lending arm, said Burma has the potential to generate some 100,000 megawatts from hydropower, compared with less than 5,000 megawatts that the country’s dams currently produce.

“Unleashing this potential could turn Myanmar into the largest energy producer in the region with the ability to supply electricity to neighboring countries,” the IFC statement said.

But projects already proposed by the government have drawn opposition, especially as most lie in ethnic minority areas where both the Burma Army and other armed groups have been accused of human rights abuses, especially over land.

One such project is the Mong Ton dam in southeastern Shan State, a proposed 7,000 megawatt dam that would flood a large part of the state. Most of the electricity generated by the dam, which is backed by Thai and Chinese state-owned companies, would be provided to Thailand.

Australian firm Snowy Mountain Engineering Corporation has garnered controversy in its efforts to conduct public consultations on the dam in Shan State.

The Australian government is funding the IFC’s project to advise the government on hydropower, which began in January, according to the IFC statement.

The World Bank has in recent years come in for criticism over the impacts of the projects it funds—including hydropower dams—on people in developing countries. The International Consortium of Investigative Journalists has found that about 3.4 million people have been displaced by World Bank projects in the past 10 years, and alleged that the Bank regularly fails to uphold its own safeguarding policies.

According to campaign group International Rivers, the IFC faced resistance this year to a plan to fund the Gulpur hydropower project in Pakistan.

The United States government in February voted against funding the project over concerns about the methodology of the IFC’s impact assessment on the dam, saying that it “sets an unacceptable precedent for IFC engagement in areas of critical habitat.”

“In violation of its policies, the IFC ignored its own analysis on the downstream releases necessary to sustain endangered fish species,” International Rivers said in a release at the time. “By opting to restrict ecological flows in a bid to maximize profitability, the IFC is all but assuring the species’ demise.”

The website hydroworld.com reported in June that the IFC had nevertheless agreed to go ahead with providing at least US$50 million in funding for the Gulpur dam.

IMF, ADB Issue Warnings over Gas Price Exposure

International financial institutions are warning that a continued global slump in natural gas prices could damage Burma’s economic prospects.

Both the International Monetary Fund and the Asian Development Bank raised the issue of gas revenues in assessments of Burma’s economic situation in the past week.

According to the IMF, global prices for natural gas are expected to be 20 percent lower in the current fiscal year, which began for Burma in April, than the previous year. This means that despite rising production in Burma’s offshore gas fields, the government’s earnings from gas could take a dive.

“Lower natural gas prices would further reduce export earnings and government revenue, and could also lead to lower-than-expected FDI (Foreign direct investment) inflows in the medium to long run,” the IMF said in its 2015 executive board assessment for Burma.

Also this week, the ABD said in an update to its Asian Development outlook for the year that “A prolonged decline in global prices for natural gas, a major export from Myanmar, would erode its fiscal and external positions.”

The IMF predicts that Burma’s gas export revenues will fall as a percentage of GDP from 6.8 percent in the 2014-15 fiscal year to 4.8 percent in 2017-18, although the volume of exports is expected to rise.

The IMF also expects a slight fall for gas export revenues in real terms, from $4.31 billion in 2014-15 to $3.83 billion in 2017-18. This could further weaken the country’s trade deficit, the IMF warned.

The Fund recommended that the government should allow more flexibility in the kyat-to-dollar exchange rate in order to “absorb external shocks” and advised that the government promote “diversification of export growth through investment in agriculture and infrastructure [and] improve the business climate to attract FDI and develop SMEs.”

The IMF also suggested that the government could introduce a so-called fiscal rule, which would limit public spending so as to avoid running up large deficits.

“In the area of public financial management, the government should adopt a medium-term fiscal framework and consider introducing, over time, a fiscal rule to smooth spending against volatile gas revenues,” the Fund said, adding that reforms of state-owned enterprises, such as the Myanmar Oil and Gas Enterprise, should also be accelerated to improve their efficiency and profitability.

“This includes revising MOGE’s financial requirements to reflect its role in collecting natural gas rents on behalf of the government,” it said.

Thilawa Zone to Be ‘Model of Corporate Social Responsibility’

Burmese Vice President Nyan Tun officially opened the massive Japanese-backed industrial zone at Thilawa on Wednesday.

According to state media, he said that the Thilawa Special Economic Zone, which the government hopes will spark a manufacturing boom, could also set an example for the wider economic transformation that has begun since the current administration came to power in 2011.

The 2,400 acre zone is a joint venture between the Burmese and Japanese governments and a group of large Japanese conglomerates. Investors from the United States, Sweden, China, South Korea and Australia, among others, have already committed to operating in the zone, the Global New Light of Myanmar reported.

“Vice President U Nyan Tun expressed his belief that the investors will become a model of corporate social responsibility in Myanmar,” the state-run newspaper said, going on to quote Nyan Tun.

“The special economic zone is a paradigm shift in the investment sector, bringing sustainable development to the country’s industrial sector without damaging the environment,” he said.

“With new visions, new policies and new rules, Thilawa SEZ has opened a new chapter in the investment sector, which creates a good investment environment for local and foreign investors.”

Microsoft to Aid Local Conglomerate’s ‘Digital Transformation’

US software giant Microsoft has entered into an enterprise agreement with local conglomerate Kanbawza (KBZ) Group to upgrade the company’s IT infrastructure.

In what Microsoft says is its biggest deal in Burma to date, the company, which has had a presence in the country since 2013, is stepping further into a nascent tech sector where pirated software is the norm.

The agreement between the two companies will first see Microsoft supply servers that allow the group’s KBZ Bank to use secure cloud computing across its business, a statement on Microsoft’s website said.

“The digital transformation journey will at a later stage involve the other subsidiaries of KBZ Group, which includes interests in mining, banking, aviation, insurance, manufacturing, agriculture, real estate, trading, healthcare, tourism and hospitality,” it added.

With intellectual property rules not widely enforced, many Burmese businesses, including larger companies, still use unlicensed software for their operations.

In comments in Microsoft’s statement, Stephane Lamoureux, KBZ Group’s IT director, suggested that partnering with Microsoft would set the company apart from others in the country.

“This partnership not only enables us to grow our business, but also raises our brand value in both the country and region due to our commitment to security and intellectual property rights,” Lamoureux was quoted saying.

German Chemicals Firm Opens Rangoon Office

German company BASF, the largest chemicals producer in the world, has set up an office in Rangoon as it hopes to cash in on increased demand for its products in Burma.

The company said in a statement that while it has been operating in the country for five years, it had now opened its office in the Sedona Hotel “to support its growing base of local customers and cater to an increasing demand for high quality and sustainable chemical products and solutions in the country as it develops.”

The statement said the company’s products were targeted at the agricultural industry, construction and mining, among others.

“BASF offers solutions that can help produce better yields in agriculture, affordable higher-quality buildings, clean water and better nutrition, and more sustainable manufacturing and mining,” Boonchai Opas-iam-likit, BASF’s managing director for Thailand, Vietnam, Cambodia, Laos and Burma, said in the statement.

“With a representative office in Myanmar, we can support our customers directly as they expand and develop their businesses.”