Making Myanmar an energy powerhouse

Myanmar’s national electrification process is still on hold one year after the new administration took office. The replacement of the Minister of Energy in early August showed the priority given to energy, but the government still has much to do. Myanmar will have to decide on how to solve its chronic power shortage. There are three challenges that must be addressed to meet the country’s urgent need for electricity.

National energy policy

In addition to the national energy policy signed in 2014 by then-President U Thein Sein, numerous strategies have been proposed. The Myanmar Energy Master Plan, adopted in 2015 as the country’s overall energy plan, favours renewable energy, particularly hydro and solar power. However, the most influential strategy is the proposal by the Japan International Cooperation Agency (JICA), the largest supplier of official development assistance to Myanmar. JICA proposed developing a coal power plant with the catchy term “clean coal”. The aim is to push forward the projects that have stalled under the new administration.

However, there is a catch: Myanmar needs to import a specific type of coal to run the plant and it will require 2-3 years to become operational. Thus, its benefits would only be reaped after the next elections. The government is therefore less likely to follow through on the project because it wants to tackle the trade deficit during its current term.

Solar and hydropower are back on the negotiating table. Long-stalled hydropower projects, such as the Shwe Li-3 power plant, were given the green light but still require an agreement with the Ministry of Energy on the details of the investment plan. Negotiating the project’s implementation and tariffs could add an extra year before the hydropower station becomes operational. The potential to generate 104,000 megawatts from hydropower is part of Myanmar’s long-term plan to compete in the region and become an energy powerhouse. Yet, it is not the solution to the country’s urgent needs.

Solar energy – with its potential to generate 40 terawatt hours per year and its rapidly falling global production price – is the future. Potential investors have proposed solar projects to Myanmar’s regional and union governments but have been unable to secure funding. Also, such large-scale investments require extensive land areas, a can of worms for a government already struggling with land-rights issues. Large-scale solar farming thus remains a castle in the air.

Funding sources

Financing is a major concern for the administration. Due to the government’s budget deficit, public-private partnerships are favoured rather than the government carrying the burden alone. Ultimately this benefits the more economically feasible coal power projects supported by Japan.

Uncertainties over the country’s political stability, increasing demands by local communities for corporate social responsibility, regulated low tariffs and a bigger equity ratio requested by Myanmar are additional costs that international energy giants need to consider before investing.

Only a few well-known risk takers such as Électricité de France and Marubeni have taken the bold step to invest. Marubeni is backed by Tokyo with a generous development aid grant to Myanmar. However, there are legacy issues and concerns within the Myanmar Ministry of Energy about Marubeni’s policies on its use of particular manufacturers. This shows that despite one securing funds and policy approval from the Myanmar cabinet, the Ministry of Energy holds the key to a project moving forward. Technical compliance and third party contracting issues are used as leverage in these political negotiations.

For years, the government has attempted to increase tariffs but – as documented by a recent report from the Myanmar Institute of Strategic and International Studies – was held back by fears of a public outcry against price hikes.

Nevertheless, it was announced that the government will increase tariffs no later than April 2018. The new rate has not yet been disclosed.

Ethnic conflicts

The ongoing conflicts in Shan, Kachin and Rakhine states not only make it difficult to invest but also to secure funds at a reasonable interest rate. For example, the average interest rate is 3-4% higher in Myanmar than in Laos, with the additional cost of security, since most hydropower plants are in areas contested by armed ethnic groups. Developing hydropower plants also requires political capital on the part of the government. As human rights violations related to development projects have been reported, it may take time to convince local people to accept such projects.

Importing power from China is considered an option because the completion of new dams in Yunnan will cause the cost of such imports to drop significantly. However, ongoing conflicts in Kachin and northern Shan states make it difficult for the government to invest in power lines.

A recent publication from the Stimson Center, “Mekong Power Shift: Emerging Trends in the Greater Mekong Subregion Power Sector,” describes Myanmar as the future battery of the region, but with its political instability and conflicts it may not be able to respond to the country’s need for a 13 percent annual growth rate.

Japan appears to be the only player committed to Myanmar despite its political climate and high-risk environment for investors. Its answer to Myanmar’s electrification need is viable, but may require some adjustments to align with the Energy Master Plan and to overcome legitimacy issues. If Japan sets a long-term strategy to invest in renewable energy in Myanmar, it leaves open the possibility of transforming Myanmar into the “battery” of the regional energy market, with Japan as the “charger”.

Source: Myanmar Times

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