Electricity issues to threaten big industry

With another summer approaching, Yangon industrial estates are again facing the prospect of massive power outages that owners expect will cost industrialists hundreds of thousands of dollars in profit, while hurting the commercial capital’s efforts to bolster an investor-friendly reputation.

In the summer months of March to May 2013, factories had as little as three hours of electricity a day, and for the first two weeks of May suffered complete and continuous power outages.

The Yangon Electricity Services Board (YESB) is currently able to supply factories with 18 hours of electricity every day, but when city use spikes in the hottest months, factories are unable to access the 3500 to 4000 electric units they need daily to operate – Yangon’s 31 industrial zones require on average a daily supply of 250 megawatts, with 80 megawatts consumed by the sprawling Hlaing Thuryar zone alone.

“Power shortages cause industry to fall down,” said U Myat Thin Aung, chairperson of the Management Committee for Hlaing Tharyar Industrial Estate at Yangon’s largest industrial zone in Hlaing Tharyar township. “Last May, the amount of electricity provided for Yangon’s industries was sometimes zero.”

In May 2013, the power shortages were so intense that the 100 or so frozen seafood factories that require constant access to electricity to keep products frozen were forced to shut down for up to two weeks, resulting in hundreds of tonnes of food being left to spoil.

Other factories meanwhile were forced to limit production hours to times when electricity supply was available.

A single day of production lost at a medium-sized frozen seafood factory is valued at losses of about $2200, U Hnin Oo, vice chair of the Myanmar Fishery Federation, said.

“I would try to run my factory by generating electricity myself using diesel, but I don’t think I can survive long doing that,” U Tun Aye, owner of Shwe Yamone frozen fish factory in Hlaing Tharyar industrial estate, told The Myanmar Times.

“If we don’t have electricity, we have to struggle even to survive – we cannot speak of extending the business,” he said, adding that his company would have to limit its production schedule in anticipation of blackouts this year.

To make matters worse, businesses in the industrial zones now worry for their reputation as blackouts this year will impact newly signed export deals they have with countries in the European Union following the lifting of trade tariffs in July.

“Factories still need to upgrade to become competitive, and to do that they need electricity,” Myanmar Fishery Federation vice president U Hnin Oo said, adding that several seafood factories in Yangon are now eligible to export to the EU.

U Hnin Oo, of the Myanmar Fishery Federation, said that the electricity issue would not only hinder production but also stifle growth as the market depends on improving its operations as well as its technical capabilities.

“Myanmar’s products need to be better quality, but if we don’t have reasonable electricity it is very difficult to take advantage of the EU market,” he said.

Though the electricity issue is widespread – with nearly 80 percent of the population of Myanmar going with no access at all – economists believe that Myanmar’s power supply woes will have grave affects on the economy if something is not done soon.

“Right now, although the government is inviting FDI [foreign direct investment], it cannot promise to provide a reasonable amount of electricity. This will be a barrier for most foreign investors who do not want to have to generate their own electricity,” U Hla Maung, an independent economist, said.

Currently, factories in Yangon industrial estates pay K75 per unit of electricity provided by the MOEB, far higher than the K35 being paid per unit in most households. For factories that have to transform their own electricity, the added overheads increase to K90 per unit, while factories that often rely on diesel generators during blackouts pay K300 per unit, U Myat Thin Aung said.

“If a factory has to run on diesel electricity that it generated itself then it cannot survive,” he said. “So it has to be stopped if the duration of the power shortage is too long and the factories [must pay the salaries] of its employees, though they have nothing to do during that time.”

What is more, the government announced last year that it was haemorrhaging money on electricity costs and that starting in April would raise the cost of electricity for commercial users by 50pc to K150 for each unit consumed above 5000 units, drawing ire from factory owners.

“In some countries, heavy electricity users get a discounted rate, but here those users already have to pay more, even though we don’t get 24-hour supply,” said U Myint Zaw, vice president of the Myanmar Industrial Association.

U Nyo Min, chair of the Myanmar Fishery Products Processors and Exporters Association, said that electricity currently comprises 20pc of his seafood factory’s total expenditure, but facing a power shortage, that figure grows to 60pc.

“If we don’t have a reasonable amount of electric in the coming summer, I have to cut down the working hours,” he said. “We are struggling to survive.’’

In October, the YESB invited local and international companies to a roundtable discussion geared toward enticing additional electricity suppliers into operation.

Those companies suggested they could get the job done if the government release compressed natural gas (CNG) resources, but this was denied due in part to a CNG export commitment with Thailand and China.

However, five local start-up independent power providers (IPPs) promised to deliver the additional electricity by establishing commercial diesel generators.

In principle, the agreement would see additional power given to Yangon’s 31 industrial estates before March, but the IPPs have since reneged on the deal, said U Myat Thin Aung,.

“From the factories’ perspective, we want to start buying additional electricity provided by IPPs during the coming summer months because we do not have reasonable electricity from MOEP [Ministry of Electric Power],” he said.

The IPPs were offering electricity deals at the rate of K150 per electric unit, twice the going rate for state-provided electricity from MOEP.

YESB chairperson U Aung Khaing did not respond to requests for comment and would not provide contact details for the IPPs.

Minister of Electric Power U Khin Maung Soe predicted 2014’s electricity demands would outpace past years with demand in some areas slated to rise to 2370MW – 715MW above the current maximum electricity production level of 1655MW.

Source: Myanmar Times

NB: The best way to find information on this website is to key in your search terms into the Search Box in the top right corner of this web page. E.g. of search terms would be “property research report”, ”condominium law”, "Dagon City", “MOGE”, “yangon stock exchange”,"MECTEL", "hydropower", etc.

To learn about the business opportunities in Myanmar click here

To evaluate the various segments of the market that you could possibly enter base on your competencies you can do a Custom Market Entry Strategy Research. You can see a sample report at page "Actual Sample of Client Report”. Click here to go to page.

Do you know that IE Singapore is giving up to SGD 20,000 support for Singapore company to venture into Myanmar? To learn more click here