Myanmar powers up

The government of Myanmar has made energising the power sector an urgent priority, aiming to provide electricity to the whole country by 2030 at the latest. While hydroelectric dams will provide most power, new gas-powered plants and liquefied natural gas (LNG) will increase the supply in the medium term. International finance and expertise are being sought, with abundant business opportunities for foreign firms.

State Counsellor Aung San Suu Kyi realises that the peace process alone cannot ensure stability and national reconciliation, according to government insiders. “Peace and electrification” are now the government’s top priorities, she said earlier this year. When she visited a community near Mandalay in early August, she told residents the whole country would have electricity by 2030. But few concrete details have emerged so far.

Investment in infrastructure development is “ground zero for democracy in Myanmar”, Sean Turnell, a senior economic adviser to the government, told Asia Focus recently. That means providing a stable source of power for industry and consumers. It is central to the plans for economic development, he added.

The recent appointment of Win Khaing as energy minister was a significant step, but the optimism of ministry officials four months ago has subsided, replaced by administrative inertia.

No obstacle will be allowed to stand in the way of providing electrification for the whole country, the new energy minister told power industry executives shortly after his appointment. He is now working to convince international businesses that the Myanmar energy sector is “investable”, said Prof Turnell.

The government, he added, understands that it needs international investment and expertise to deliver on its promises. Officials have approached Norway, China and Thailand for assistance, according to government insiders.

The government has ruled out coal-fired power plants, given public concern about their environmental impact, in favour of other options, especially renewable energy, according to ministry officials.

However, sources in the ruling National League for Democracy believe some coal plants may still be used, even though the “wet” coal from Sagaing, in the west of the country, is regarded as inferior for the production of electricity, and transporting imported coal from Indonesia would make production costs prohibitive.

In the short run, LNG is seen as a way to build up generating capacity relatively quickly. Tentative plans call for an LNG storage and supply base to be built near Yangon, with fuel coming from Thailand and Singapore until local gas supplies come online.

The longer-term plan is for hydroelectric plants to supply the bulk of energy needs, though this could take up to 10 years. Solar energy is also going to be added to the mix.

Myanmar is in desperate need of a stable supply of electricity, particularly in the rural areas where more than 70% of the population lives. The lack of a consistent power supply is limiting industrial growth and preventing the country’s economic takeoff.

“Myanmar’s ability to raise per capita incomes and living standards, and to create a more inclusive and equitable society, all depends on a well-functioning power sector,” Keith Rabin, a business consultant and energy specialist focusing on Asia with long experience in Myanmar, told Asia Focus.

Authorities in Myanmar hope to replicate the success of Thailand, where the national power grid covered only 11% of the population in 1986. A major electrification programme, especially in rural areas, brought the figure up to 65% within only a few years, helping Thailand on its way becoming a regional manufacturing hub.

In Myanmar only 30% of the population is currently connected to the national power grid. The recent census found that 69% of the country’s households use firewood for cooking and 46% use kerosene, candles or batteries for lighting. This poses both health risks and eats up much of their daily income. According to recent reports, reliance on non-grid power costs rural residents 10 to 20 times what they would pay for electricity from a subsidised grid.

Myanmar’s current power generation capacity — just 5,215 Megawatts with hydropower accounting for 61% — is only about one-sixth that of Thailand. But it also loses more than 20% of what it generates during transmission and distribution. Electricity consumption is 44% for residential use, 32% for industrial purposes and 20% for commercial use.

But the country’s power needs are increasingly acute, especially in urban centres, with overall electricity demand increasing by around 12% annually. In Yangon alone, total energy usage in the city centre has risen 20% since 2015 — to an estimated 1,250MW.

The situation is so dire that foreign businesses in the showcase Thilawa Special Economic Zone, a Japan-Myanmar joint venture on the outskirts of Yangon, have had to restrict their immediate expansion plans.

Ajinomoto, the giant Japanese producer of seasonings, cooking oil, sweeteners and pharmaceuticals, opened its factory in Thilawa earlier this year but cannot run at full capacity because of the lack of electricity. Instead it imports seasoning powder from its factory in Thailand and packages it in Thilawa for distribution.

Yanmar Myanmar, a farm machinery joint venture between Japan-based Yanmar and Mitsui, set up in Thilawa earlier this year but has shelved production plans until there is a reliable source of power.

Marubeni has one small power plant that supplies Thilawa and plans to build a second one nearby.

“Electricity is one of the main difficulties facing factories in Thilawa,” said Takashi Yanai, former president of Myanmar-Japan Thilawa Development Ltd (MJTD). “We need to resolve the issue of the power supply in the SEZ before the manufacturing sector can develop robustly. But we hope the situation will improve as the government is providing support.”

In recent weeks foreign businesses promoting power-generating projects have found the energy minister and government officials less approachable than a few months ago. Proposals for several schemes are sitting on the minister’s desk awaiting approval, according to ministry officials. The major obstacle at the moment appears to be electricity tariffs.

The government heavily subsidises electricity prices, providing power to consumers at around 3 US cents a megawatt, compared with 16 cents in Cambodia. This is much less than the cost of production, which is 8 or 9 cents. It costs the government around $350 million a year to subsidise the national grid, according to energy specialist Jeremy Mullins at Yangon-based Frontier Myanmar Research.

“To attract foreign investors the government must deal with the growing electricity subsidy,” Mr Mullins told Asia Focus. “One way to do that is to raise price tariffs for consumers.

“While raising prices is the best way to address this, from an economic and business point of view, there are other potential solutions. For instance, the government could also issue sovereign guarantees for new projects.”

Officials from the ministry hinted a few months ago that a review of tariffs was pending, and that prices could increase before the end of this year. The World Bank is helping the government draw up a tariff policy that would develop the electricity sector, reduce losses and set appropriate rates, Dr Tun Naing, the deputy energy minister, told parliament at the end of July.

Since then there has been silence, and the government seems to have deferred any move to raise electricity prices for fear of sparking protests and unrest, say some industry analysts. This has also raised fears that the government will continue to drag its feet on approving generation projects, as new plants would swell the subsidy bill further, increasing the budget deficit and straining public finances.

Source : Bangkok Post

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