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Kyaukphyu power deal expected ‘within weeks’: Supreme Group

The consortium developing a 135-megawatt power project at Kyaukphyu in Rakhine State expects final approval of a power purchase agreement within weeks, a spokesperson says.

Myanmar’s Supreme Group and Chinese state-owned firm Sinohydro are jointly developing the US$180 million project, which will use gas from the Shwe field and generate power for distribution in Rakhine State.

The companies signed a letter of acknowledgement for the conclusion of the PPA negotiations with Minister for Electricity and Energy U Win Khaing on the sidelines of the Belt and Road Forum in Beijing on April 28.

However, the agreement still requires final government sign-off, said Supreme Group deputy chief executive officer U Htu Htu Aung.

“The negotiated PPA is in the process of final approval by the Myanmar government,” Htu Htu Aung said. “Approval is already in process and expected within the next few weeks.”

The PPA would be an important milestone for the National League for Democracy government, which has made electricity supply a top priority but struggled to agree on PPA terms with potential long-term investors.

As a result, Myanmar is facing major shortfalls in generating capacity in the coming years. Significant power shortages are expected during the hot season when demand peaks and production from hydropower dams declines, prompting the Ministry of Electricity and Energy to recently announce plans for an emergency power tender.

One major hurdle has been the government’s insistence in paying in kyat for the power generated, a scenario that is unattractive to most investors because the bulk of their costs are in US dollars. The government has also been unwilling to issue developers with sovereign guarantees, which would make it easier for them to attract financing.

Approval of the Kyaukphyu PPA would not represent a breakthrough on these issues, however. Htu Htu Aung said the consortium did not seek a sovereign guarantee for the project and has agreed to be paid in kyat, although this would be based on a US dollar tariff.

The lengthy negotiating period means the Kyaukphyu project is already well behind schedule. Under a “notice to proceed” that the Ministry of Electricity and Energy issued to the consortium in January 2018, it was scheduled for completion by May 2020.

Myanmar state media has described the Kyaukphyu project as “an important project for the Myanmar-China Economic Corridor”, a reference to the Myanmar portion of the Belt and Road Initiative.

Htu Htu Aung said the company was not involved in CMEC negotiations but that the inclusion of the project would be helpful. “Being part of BRI/CMEC can benefit the project in terms of support of both governments and more competitive financing due to bilateral recognition of the importance of the project at national strategic level,” he said.

Supreme also received a notice to proceed in January 2018 for a 1,390MW liquefied natural gas to power project at Mee Linn Gyaing in Ayeyarwady Region, in partnership with a different Chinese company, Zhefu Holdings.

Htu Htu Aung said negotiations for Kyaukphyu had been completed first because the $2.5 billion Mee Linn Gyaing project had a “much more complex PPA structure”. A key challenge is the requirement that the investors include the cost of importing the LNG in the PPA.

Source: FRONTIER MYANMAR

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