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CHAPTER 3
STUDY OF ECONOMIC EFFECT IN MYANMAR

3.1 Introduction
Myanmar currently suffers from acute "energy poverty" despite proven natural gas
reserves of 7.8 trillion cubic feet. 80% of the country's natural gas is exported. Its immediate
neighbor, India, China and Thailand, are all net importers of crude oil and natural gas and
have been eager to tap into Myanmar's gas reserves. The geopolitical context of Myanmar's
energy sector places the country in a unique position to attract foreign investment into its
energy sector while trying to provide for its own energy needs. Yet with only 20% of natural
gas feeding domestic demand, there is an insufficient supply to meet local use and only about
26% of the population has access to electricity. The existing power infrastructure can meet
only about half of current demand, resulting in frequent blackouts and rationing of electricity
suppl. Only 13% of the population have access to the national electricity grid, and almost
95% depend on solid fuels such as wood and rice husks for cooking and heating. The word
bank projected that Myanmar would need $444 million every year-almost 10 percent of its
GDP, the highest of any country in Asia-to achieve universal access to electricity by 2030; to
put this number in perspective, the next highest investment requirement, in Timor Leste,
would need to invest only 2.7 percent of its GDP.
Myanmar has one of the lowest levels of tax revenue collection, and natural resource
revenues are an important source of income. Only 1 percent of the FDI coming into Myanmar
from FY 2010-2011 was outside the extractive sectors, although the more recent pattern of
inward investment is changing. Gas revenues are the largest source of foreign income for the
Government of Myanmar, with a peak of 6.5% of GDP projected in 2014/15. As such, the
O&G sector will remain a major contributor to the Myanmar economy through significant
revenue transfers for a long time to come.
Energy will be important to Myanmar's further integration into the global economic
system: it reserves and strategic location between Asia's two biggest economics already mean
it can be an important regional supplier and crossroads. However, the development of the
sector will require a transformation of the basic institutions and infrastructure that are needed
to drive the country's future economic growth and ensure that O&G and power generation
can contribute to poverty alleviation and address the disparity between urban and rural areas.

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In their proposed framework for Myanmar to build a 'New Energy Architecture', the World
Economic Forum and the Asian Development Bank highlight three essential requirements
that Myanmar's energy policy must achieve in order to balance a myriad of competing
interests: economic growth and development, sustainability, and energy access and security
in the country.
However, there are good reasons for Myanmar to diversify away from an over-
reliance on the sector. In addition to potential resource curse issues, as the ADB also notes,
Myanmar's current growth pattern, with a major concentration in energy and the extractive
industries, is placing huge pressure on its environment and if continued, will certainly be
unsustainable. It has also been identified as a country with strong potential to develop
renewable energy resources and to be a regional supplier of clean and affordable energy.

3.2 Oil and Gas Consumption in Myanmar

This section lists the major elements of the transition process to a market economy, on
which Myanmar’s performance is evaluated in subsequent sections. There are three main
components of the transition process; macroeconomic stabilization; price and market
liberalization; and restructuring and privatization of state enterprises and allowance of new
private firms and activities. Due to diverse initial conditions and reform strategies of the
governments, transition economics took diverse paths in transitioning to market economies,
with varying degrees of success in terms of economic performance.
Macroeconomic stabilization includes getting inflation under control. Many transition
economics experienced high inflation during the early years of transition. High inflation was
caused by, first, the fall in output in the initial transition, and second, the elimination of
controlled prices. Liberalization of price controls often resulted in sharp price increases.
Monetization of fiscal deficits that come about as a result of the fall in output and the
restructuring of state enterprises also played a role in sparking inflation. Tight monetary and
fiscal policies were the usual prescription for containing inflation, and the shortage of fiscal
revenues was a major obstacle for fiscal consolidation.
Price and market liberalization, and restructuring state enterprises permitting private
firms are both structural reforms designed to replace a centrally planned economy with a
system of market oriented resource allocation. Centrally planned economies employ
controlled prices that distort relative prices and cause inefficient resource allocation and black
markets. Price liberalization refers to the elimination of controlled prices and includes the
alignment of the official foreign exchange rate to the parallel market rate. Market

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liberalization refers to the elimination of entry barriers for industries that were formerly
monopolized by state enterprises as well as the liberalization of foreign exchange and foreign
trade. Price and market liberalization is used to create greater economic efficiency and to
enhance economic growth.
The restructuring and privatization of state enterprises and the allowance of new
private firms are designed to allow the private sector to supplant the state sector as the major
actor in the economy. Privatization of state enterprises was more prominent in the transition
economies of Central and Eastern Europe and the former Soviet Union, whereas the
establishment of new private firms was emphasized in the case of East Asian transition
economies.
These three pillars of the transition process are not sufficient conditions for a
successful transition; the literature stresses the important of institutional infrastructure
building as well. Institutional infrastructure underpins the operation of market economics.
Necessary reforms include the elimination of direct and indirect subsidies from the state
budget and the implementation and enforcement of bankruptcy laws and creditor rights. All
of these impose hard budget constraints on economic agents.in regard to institutional
infrastructure building in the transition process; there has been debate between advocates of
the big bang approach and the gradual approach. Given the complementarity among the
above mentioned three pillars of transition processes, the advocates of the big bang approach
propose implementing all the reforms simultaneously and rapidly. In contrast, the advocates
of the gradual approach contend that institutional infrastructure building is evolutionary and
that existing institutions will adapt to new environments. They argue that the big bang
approach fails to recognize the long and difficult process of institutional infrastructure
building.

3.3 Opportunities for Foreign Investors

Until 1988 the government led by the Burma Socialist Programme Party (BSPP),
Myanmar pursued the Burmese Way to Socialism, a variant of central planning. The
agricultural sector, which accounted for the bulk of economic activity, was never
collectivized, but the marketing of principle agricultural commodities was monopolized by
the state enterprise under the state procurement and distribution system. The industrial and
services sectors were wholly under the control of the central planning office, although they
accounted for a minor share of GDP, around 21.7% as in other transition economies in

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Southeast Asia. Foreign trade was also monopolized by the state. Nonetheless, export
smuggling was considered pervasive
Myanmar started its transition to a market economy during the economic turmoil of
the late 1980s. Before the transition, the real GDP growth rate was negative for three years in
a row, and it recorded minus 11.4% in 1988 (World Bank, 1995). To counteract the economic
downturn, in September 1987 the BSPP government announced the abolition of the state
procurement and distribution of rice, which led to an immediate jump in the price of rice. To
combat inflation, the government demonetized large denomination banknotes in September
1987. The demonetization invalidated 57% of the currency in circulation. The rise in the price
of rice and the demonetization led to a nationwide antigovernment movement in August
1988. Under these circumstances, the military staged coup in September 1988, seizing power
from the BSPP. The military established the State Law and Order Restoration Council
(SLORC) and announced the abandonment of the Burmese Way to Socialism, aiming to
revitalize the economy. The military junta remained in the office until March 2011 and
implemented its peculiar transition strategy.
The transition strategy of the military junta emphasized the creation of new private
firms and activities as opposed to state enterprise reform and market liberalization. The
government liberalized the domestic marketing of agricultural commodities but resumed the
procurement and distribution system for rice, though on a smaller scale than before. The
government also allowed private firms to enter the industrial, commercial, and foreign trade
sectors, while the State Economic Enterprise Law instituted in March 1989 designated 12
sectors for monopolization as state economic enterprises (SEEs). These included teakwood,
minerals, petroleum and natural gas, and precious stones and pearls.
The junta recognized the inefficient operations of existing state enterprises. Under the
BSPP regime, SEEs took loans from the Myanma Economic Bank (MEB), one of the state
banks, and maintained revolving funds outside of the centrally controlled budget, these loans
resulted in large accumulation of debt. The outstanding loans from the MEB to the SEEs
swelled from 9% GDP in 1978 to 61% in 1988. Furthermore, the source of funds for loans to
the SEEs was mostly the central bank lending to the MEB. In fact, by printing money, the
central bank had been lending to the SEEs indirectly through the MEB.
As a consequence of this transition strategy, two resource allocation systems stood
side by side in Myanmar: central planning of the state sector and the market oriented
economy of the private sector.

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3.4 Strength and Weakness of the local companies

As of 1990, the overall public sector share of GDP was 22%, and the total
employment in SEEs was 312000 (World Bank, 1995: 52-53). The operations of the
Myanmar’s SEEs have been diverse. They included large scale monopolistic operations such
as electric power generation and supply, railways, and the post and telecommunications.
They also included operations such as textiles and foodstuffs where there was competition
with the private sector and with imported goods.
The most important feature of Myanmar’s transition was the worsening of the soft
budget constraint problem embedded in the state budget system. The budget system was
divided into the local currency budget and foreign exchange budget. The remainder of this
section presents the details of the budget system.

3.5 Natural Gas Domestic and Export

This section evaluates three aspects of Myanmar’s transition to a market economy in
relation to the private sector: macroeconomic stability, market liberalization, and institutional
infrastructure.

3.5.1 Domestic
Domestic gas consumption has been historically limited, and driven by the available
gas volumes indigenously produced that were not exported. The power sector accounts for
the overwhelming majority of natural gas consumption (currently around 70%), while the rest
is consumed mainly by industries, CNG filling stations and refineries.The country’s plans for
electrification, and the subsequent need for additional power generating capacity, is expected,
according to the Ministry of Electricity, to lead to the construction of new gas-fired power
plants. The commissioning of these new plants, which is planned until 2021, will lead to a
strong growth in domestic gas consumption, and result in 2.5-fold increase in demand from
current levels (around 300 mmcf/d on average in 2014-15) to around 750 mmcf/d on average
in 2020-21 onwards. The largest part of this increased demand will be attributed to a limited
number of offtakes of the gas system, which will serve the new power plants.
Domestic market is currently supplied from indigenous sources, primarily offshore
fields which supply 81% of the domestic market supplies (2014-15). Offshore fields provide
the bulk of their production to the export market. The availability of indigenous gas supply
for the domestic market is nevertheless decreasing, as production from both onshore and
offshore fields is predicted to drop from 2020-2021 onwards.

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The industrial and commercial demand examined mainly includes gas used in
Myanmar industries for energy and feedstock, oil refineries and CNG filling stations. The
projections for industrial/commercial demand for the period from 2015-16 up to 2024-25
were provided by MOGE. According to these projections, demand is expected to increase
more than 2-fold from around 70 mmcf/d on average in 2014 –15to around 150 mmcf/d on
average in 2015 –16 onwards, driven primarily by demand from existing paper and cement
plants and oil refineries, as well as by new plants, mainly in metallurgy and cement
industries.As the estimation of the economic cost of gas supply is carried out for the period of
2015 –2030, while demand forecasts from MOGE were provided up to 2025, gas demand is
assumed to remain constant for the period 2026 –2030.
Most of the gas produced in Myanmar originates from the country’s offshore fields of
Yadana, Zawtika, Shwe and Yetagun. However, in accordance with the PSA for development
of these fields, the largest part of production is exported, and only a small part is supplied to
the domestic market. Specifically, the domestic market receives 31% of gas produced in
Yadana, 29% of gas from Zawtika and 20% of Shwe, while Yetagun is fully export oriented.
Production, exports and domestic supply historical and projection information for the three
offshore fields (Yadana, Shwe, Zawtika) supplying the domestic market, on the basis of data
received from MOGE.It is noted that MOGE provided production forecasts for the offshore
fields until 2025, and thereafter it was assumed that supply directed to the domestic market
would remain constant for the period 2026 –2030. Provides production information for
Yetagun, for completeness purposes.
Yadana started production in 1999, with annual production volumes ranging between
200,000 and 300,000 bcf until today. Production is expected to decline henceforth, reaching
levels below 100,000 bcf by 2025/26. The majority of Yadana gas has been and will continue
to be exported to Thailand. Historically, domestic consumption accounted for 1% to 26% of
production, averaging at around 11%.Forecasts of available supplies for domestic use are
from 31% of production declining to 22% of production, in the period to 2025/26, averaging
at around 26% of production.
Zawtika started production in 2014, with annual production volumes in the years until
today ranging between 84,000 and 118,000 bcf. Production is expected to increase to 126,000
bcf in 2016/17, with levels maintained until 2023/24, declining to around 77,000 in
2025/26.The majority of Zawtika gas is exported to Thailand. Forecasts of available supplies

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for domestic use range between 23% to 47% of production, in the period to 2025/26,
averaging at around 30% of production.
Yetagun started production in 2000. Production is assigned only to exports. Yetagun
production is nevertheless expected to decline significantly, reaching around 13% of today’s
production levels by 2025/26.
Shwe also started production in 2014, with annual production volumes in the years
untiltoday ranging between 42,000 and 174,000 bcf.Production is expected to increase to
around 182,000 bcfin 2016/17, with these levels maintained until 2025/26.The majority of
Shwe gas is exported to China.Historically, available supplies for domestic use ranged
between 1% to 9% of production. It is forecasted that domestic use will account for around
20% of production in the period to 2025/26.
There are 7 onshore fields listed below (in parentheses the start of production date)
whose production is exclusively oriented to supplying the domestic gas market:
Mann(1970)
Htauk Sha Bin (1978)
Apyauk (1991)
Kyaukkwet (1995)
Nyaung Don (1999)
Thar Guyi Taung (2001)
Ma U Bin (2006)
Total production of these fields was about 46 bcm in 2004/5 and rapidly declined over
the years reaching about 19 bcm in 2015/16.It is forecasted that production from these fields
will be around 17 bcm p.a. in the period 2016/17 to 2024/25.Of the 7 onshore fields, Nyaung
Don has the largest gas production, accounting for 36% of total onshore gas production,
followed by Kyaukkwet (21%), MaU Bin (17%) and Apyauk (15%).

3.5.2 Export

Myanmar is a net natural gas exporter, supplying gas to China and Thailand.
Myanmar has 53 onshore blocks in operation;17 blocks are operated by 12 companies, mostly
international companies. Offshore areas are divided into 51 blocks and 18 are in operation.
The existing offshore gas projects are Yadana Project, Yetagon Project, Shwe Project
(exporting gas to China) and Zawtika Project.  The daily production rate of the Yadana
natural gas project is 910 million cubic feet (Mcf); Shwe produces around 500 Mcf; Zawtika

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produces 360 Mcf; and Yetagon produces over 250 Mcf. There are six deep rigs, nine
medium rigs and eleven shallow rigs.  The total length of natural gas pipeline in the country
is 2,200 miles.  Myanmar has 45 compressed natural gas (CNG) filling stations and has over
27,000 CNG vehicles.  The average domestic natural gas supply is 300 Mcf per day.
State-owned Myanma Oil and Gas Enterprise (MOGE) under the Ministry of
Electricity and Energy (MOEE) exports natural gas to Thailand and China annually based on
the individual contracts. Natural gas is Myanmar’s top export which brings in the most
revenue. The government’s annual budget expenditures still have to mainly rely on the
revenue of natural resources and raw materials, including natural gas.
This year’s export has increased, but the export earnings over nine months in 2016-17
was only $1822 million, which was half of the $3086 million export in 2015-16 fiscal year,
according to the officials from the commerce ministry. It is due to a drop in oil price in the
international market.
According to official website of Myanmar Trade Promotion Organisation, Myanmar
exported 498,442 tonnes of gas and earned $2926 million in 2009-10, while it exported
410,370 tonnes and earned $2522 million in 2010-11, and 114,287 tonnes for $3,666 million
in 2012-13; $3,299 million in 2013-14; 59,516 tonnes for $3,525.55 million in 2014-15.
Natural gas revenue constitutes half of total of the national export revenue.
Those numbers suggest that if natural gas export earning exceeds $3,000 million, it
takes up 50pc of export revenues.
Natural gas export volume reached more than US$ 2.4 billion in the eight months of
this fiscal year, decreasing by more than US$ 97 million, compared with the same period of
last year, said an official of the Ministry of Commerce. More than US$ 2.456 billion were
fetched from the export of 177 million cubic feet of natural gas from October 1 to May 31 of
2018-2019 FY. Natural gas export reached more than US$ 3.258 billion and more than 296
million cubic feet of natural gas was exported in the same period of last year. Natural gas
export volume decreased by 119 million cubic feet of natural gas on more than US$ 97
million. Myanma Oil and Gas Enterprise generated 3.32 million crude barrels and more than
623,000 million cubic feet of natural gas from 86 oil and gas wells of offshore and onshore
during the third year of the current presidential term, according to the Ministry of Electric
Power and Energy.

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The press conference on performance made during third year of the current
presidential term for the State and the people was held at the office of the Ministry of
Information in Nay Pyi Taw on May 9, cited the statement on State-owned newspapers.
During the third year of the current presidential tenure, the MOGE managed to dig 40
wells, producing 2.31million barrels of crude oil and 19,019 million cubic feet of natural gas.
The international companies dug 46 offshore wells and generated 1.02 million cubic feet of
petrol and 604,818 million cubic feet of natural gas. During the third year of the current
president tenure, a total of 3.2 million barrels of crude oil and 623,838 million cubic feet of
natural gas from onshore and offshore. 

3.6 The Duration of Production Sharing Contract (PSC)

The onshore model PSC has three phases, the Preparation Period, the Exploration
Period and (if any) the Development and Production Period. The offshore model PSC has an
additional phase: the Study Period.

3.6.1 Preparation period

The Preparation Period is for a six month duration, which can be extended at the
discretion of the MOGE. During this period the Contractor is required to commission (i) an
Environmental Impact Assessment, (ii) a Social Impact Assessment and (iii) an
Environmental Management Plan (the Reports). The preparation of these Reports will count
towards to the exploration minimum expenditure requirement. Once the Reports have been
prepared they must be approved by the MIC before petroleum operations can commence.

3.6.2 Study Period (for offshore PSCs only)

In Myanmar, while much is known about the onshore geology, there is very little
seismic data available for offshore blocks. The Study Period provides the Contractor two
years to conduct technical evaluations and assessments prior to the Exploration Period. The
model PSC anticipates that there will be a minimum work commitment during this period,
but does not specify the amount. The Contractor must disclose all the results of its study to
the MOGE. At the end of the Study Period the Contractor may, at its discretion, terminate the
PSC and relinquish its rights.

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3.6.3 Exploration period

The duration of the Exploration Period is up to six years: Three years (Initial
Exploration Period) + two years (First Extension Period at Contractor’s option) + one year
(Second Extension Period at Contractor’s option).Unlike PSCs in many other jurisdictions
there is no phased relinquishment during the Exploration Period. Instead relinquishment
occurs at the end of the Exploration Period and amounts to 100 per cent of the contract area,
less any discovery area, development and/or production area. In addition, there is an
automatic extension of the Exploration Period to allow for completion of seismic or drilling
operations or to appraise a discovery.

3.6.4 Development and Production Period

The Development and Production Period commences on the date the Contractor gives
notice of a commercial discovery to the MOGE and shall continue to the later of: (i) twenty
years from the date of completion of development in accordance with Development Plan, and
(ii) the expiration of the petroleum sales contract.

3.7 Foreign investment

The new Law of Foreign Investment (the FIL), which repeals the previous 1988 Law
of Foreign Investment, was enacted in November 2012. The MNPED is the government
ministry responsible for foreign investment and the MIC is the regulator responsible for
approving foreign investment in Myanmar.
The FIL requires foreign investors to:
 establish a branch or subsidiary (although a branch is more common)
 obtain an MIC permit and trading permit
 obtain a certificate of registration as a branch.
An oil and gas investor must be recommended by the MOE before it can receive a permit
from the MIC. The MOE is required to makes its recommendation within seven days of the
receipt of a recommendation request and the MIC must grant or refuse the permit within
ninety days of the date of receipt of the MOGE. In addition the MOE will manage the MIC
permit application process, whereas this would be the foreign investor’s responsibility in
cases not involving oil and gas.

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