Doing Business in Burma/Myanmar: An On the Ground Report

Robert Walsh, sometime Seattle resident and long-time friend of our law firm (we worked on a number of China deals together and we — Dan and Steve — met up with him on our last trip to Myanmar), has spent the last four years in Myanmar, where he operates a vibrant business consultancy. Robert is fluent in Chinese and Korean and, amazingly enough, Burmese (multiple dialects), having learned Burmese while working in the U.S. Embassy in Yangon many years ago.

Robert has been sending us email updates from Myanmar for some time and we post some of them on here. Back in 2014, it was Myanmar: Open For Business? and in 2013, it was Myanmar Foreign Investment. Difficult And Expensive, But Opportunities Are There. In our 2013 post I mentioned that my law firm had “been involved in a few Myanmar matters, but truth be told, Myanmar is a difficult place in which to do business and many of the companies going there are bigger companies mostly looking to get in now and make money later. In the last year.” Since that time, our Myanmar work has actually shrunk as interest in Myanmar by SMEs has greatly waned and their non-China Asia focus these days seems to be more on Thailand and Vietnam. Early last year, in A Report from Myanmar from an old China Hand I talked about how much had changed, due in large measure to the relaxation of sanctions.

Today’s post is on how optimism is waning as things just keep getting worse.

1. The electricity situation here is going to get worse before it gets better.

a. Foreign oil & gas companies are pulling out of their offshore blocks en masse. They had a requirement to drill or walk away, and they are walking away. Low gas prices drive part of it, but also the royalties schemes with the Burmese government are the other part. Prevailing wisdom is that they will return later when the blocks go up for bid again, and offer a lot less and drive a harder bargain with the Burmese government.

b. Several of the schemes for producing more electricity have hinged on gas coming in from offshore. The 2 gas turbine plants running are getting their gas for free from the government, from the Yadanar fields that have been in production since the 90’s.  But production is dropping in quantity and quality and Thai TPP has first call on it. 

c. The government has given a green light for companies to do LNG, but the only credible one is led by Total. We have already been approached by one group of unqualified Burmese rent seekers who have had a gas turbine project on the back burner for more than 4 years, who now say that they want to add a LNG gasification plant.  They are offering nothing more than a 60-acre parcel that they don’t seem to own yet, but want 20% equity in the thing.

d. Coal is what the IFC and world bank are pushing the government, but there is a lot of grassroots-level pushback. A lot of communities have suffered pollution from coal-burning cement plants, and there is concern for waterways as well. Still, a so-called “clean coal” plant would be 5-7 years in the making, and would also require importing all the coal, as there is no source of suitable coal in the entire country.  

e. All of this, and electricity demand is growing 15-20% year-on-year.  The government still subsidizes costs of electricity and consumers pay very little of the costs of delivery. Last year the costs of subsidies were north of $900 million, with $358 million of that for Rangoon Division alone.  The government will not grant a power purchase agreement (PPA) to any foreign or domestic provider that covers CAPEX and running costs, let alone allow for a decent return, so private power providers are staying away. Raising rates for the consumer to the point where costs of delivery are covered is regarded as political suicide.

f. With the above in mind, consensus is that it may be as late as 2025 before we see something positive in the electricity sector.

2. Politics in general. 

a. The consensus is that Burma’s political reforms plateaued more than a year ago and are in fact in a gentle backslide. Readers will note that National League for Democracy head Daw Aung San Suu Kyi (ASSK) has been stripped of a few honors, and is in fact held in some mild disdain by many outside the country. 

b. In her defense, the military still holds control of the key ministries of defense, home affairs, and borders.nationalities. I can tell you from long and painful experience that out in the provinces it’s still 1965, as all of the authorities at the state, district, township, all the way to the village level are still appointed by the military-led home affairs ministry. 

c. On the other hand, ASSK has been decidedly unwilling to weigh in on the racial strife in Rakhine state, and her attitude towards the various ethnic armed groups is pretty much “it’s my way or the highway”. As a result of her unwillingness to play a part the groups that have any combat power at all have taken to the field again. None want to sign the national ceasefire agreement until they get what they want. The only signatories to the agreement are groups that have not fired a shot in anger for decades. Still, some trouble has recently been brewing with signatories the Karen National Union, who are pissed at Burmese Army encroachment into territory that was agreed to be off-limits.

3. Everybody and his brother wants to build and operate special economic zones and industrial parks, here, there, and everywhere.  Even the Korean government Ministry of Land & Housing is doing a 600-acre park(KMIC/ Korean Myanmar Industrial Center) about 100 miles north of Rangoon, jointly with a Korean private company.

a. We cannot understand the drive for these parks, especially in areas where the roads and other infrastructure, -to say nothing of electrical power availability- are in general lacking.

b. A key thing, one I focus on whenever I talk to developers of these things is: “Which companies have already weighed in as tenants?”.  The answer is invariably “nobody yet”. 

c. A lot of the developers are either ignoring or worse yet, -ignorant- of certain facts about Burmese workers.  They are not highly mobile, like the hundreds of millions of Chinese who gravitate to Shenzhen and other Chinese megacities for work. My best guess is that 4/5th of these parks are sited in areas where labor is going to be a problem.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.