Sherpa Hossainy's Blog

Foreign investment rules in practice in Myanmar (Part 2)

Posted in Energy and power, Investment, Legal, Myanmar, Telecommunications, Yangon by Sherpa Hossainy on July 27, 2013

Part 2: Oil and gas, telecom, energy

Published in Myanmar Business Today (Vol 1, Issue 17) on May 30, 2013
Recently, international law firm Clifford Chance and VDB Loi have jointly released a briefing note on the practical implementation of the Foreign Investment Law in Myanmar. This is the second part of Myanmar Business Today’s series of sector-wise analysis based on the briefing. This week’s topic is onshore and offshore oil and gas, telecommunications and electricity generation.

The Myanmar government implemented the country’s Foreign Investment Law (FIL) 2012 with two notifications or FIL Rules, creating a practical framework to match the government’s policy of welcoming foreign investment. Both notifications, 11/2013 of the Ministry of National Planning and Economic Development and 1/2013 of the Myanmar Investment Commission (MIC), were released on January 31.

Onshore and offshore oil and gas

Oil and gas exploration, development and production are allowed for foreign oil companies under a Production Sharing Contract (PSC) with the Myanmar Oil and Gas Enterprise (MOGE).

Blocks are awarded through an open and competitive bidding process where technical experience and financial capability weigh heavily, both factors usually being in favour of foreign enterprises.

Upon being awarded a block, operators are required to set up a Myanmar company or to register a Myanmar branch of a foreign company. Once a commercial discovery has been made a new agreement is concluded within the framework of the PSC, for example a gas sale agreement.

“Notification 1/2013 only states that a JV is required for oil drilling using traditional methods with a maximum depth of 10,000 feet, but in practice, investors are required to have a local partner for exploration and production of all onshore blocks,” Edwin Vanderbruggen, co-author of the report and a partner at VDB Loi, a specialised law and tax advisory firm with offices all over Southeast Asia, told Myanmar Business Today.

However, the percentages of ownership of the local and foreign partner are left to the agreement between the parties, he added.

“Processing and construction of petrochemical facilities requires prior government approval, which will only be granted upon advice by the Ministry of Energy (MOE),” Edwin explained.

The importation, transportation, storage, sale and distribution of petroleum/petroleum products and natural gas, also requires prior approval by the MOE, according to the new rules.

Telecommunications

The Government is expected to award two nationwide mobile telecommunications licences by the middle of 2013 through a competitive bidding process administered by the Ministry of Communications and Information Technology (MCIT).

According to the prequalification rules issued by the MCIT and based on Notification 1/2013, there is no formal requirement for a local partner. The prequalification rules are geared towards international mobile operators, but the possibility is created for these operators to conclude a consortium (and, upon awarding the license, a JV) with local or foreign partners.

Vendors of network equipment and service suppliers can, as a rule, be 100 percent foreign-owned in Myanmar. “Depending on the situation, it may be possible to obtain an MIC Permit for investments by network suppliers. The provision of domestic/international mail services and network support services are subject to prior approval by the MCIT,” Edwin said.

Electricity generation

Gas-fired power plants are usually structured as a build-operate-transfer (BOT) in Myanmar, where a foreign investor can own 100 percent of the Myanmar entity that concludes the BOT with the government. The government will normally supply gas to the developer on a pass-through basis, and purchase the electricity at a pre-agreed and indexed tariff. \

“In practice, the government harmonises the tariff cautiously, but there may be differences in various economic terms anyway through negotiation,” Edwin explained.

“Power projects are privately awarded or, more recently, through an open and competitive bidding process. The first step is usually for the developer to conclude a non-binding MOU with the Ministry of Electric Power (MOEP), and to submit a feasibility study. If the feasibility study is approved, which is usually the case, a memorandum of agreement is negotiated, which is essentially a BOT contract. Within the framework of that BOT contract, a Power Purchase Agreement, a Gas Sale Agreement and a Land Lease Agreement are concluded in due course. More or less in parallel, the project company is established and the investment licence (MIC Permit) is issued.”

The production or sale of hydropower electricity or coal-powered electricity requires the foreign owners to enter into a JV or BOT with the government. Under the agreement with the government, a royalty or a production share will usually be payable in the form of free electricity supply up to a certain threshold, Edwin said.

In virtually all cases, the investor must prepare an Environmental Impact Assessment for approval by the Ministry of Environmental Conservation and Forestry.

A gas-fired power plant with a capacity of 10 megawatts or less is not permitted to be wholly foreign-owned. The trading of electricity is prohibited to foreign investors, according to the rules.

Foreign investment rules in practice in Myanmar (Part 1)

Posted in Investment, Legal, Myanmar, Real estate and property, Yangon by Sherpa Hossainy on July 27, 2013

Part 1: Real estate and property

Published in Myanmar Business Today (Vol 1, Issue 24) on May 9, 2013

 

Recently, international law firm Clifford Chance and VDB Loi have jointly released a briefing note on the practical implementation of the Foreign Investment Law in Myanmar. Myanmar Business Today will publish a sector wise analysis based on the briefing, starting with real estate and property.

The Myanmar government implemented the country’s Foreign Investment Law (FIL) 2012 with two notifications or FIL Rules, creating a practical framework to match the government’s policy of welcoming foreign investment. Both notifications, 11/2013 of the Ministry of National Planning and Economic Development and 1/2013 of the Myanmar Investment Commission (MIC), were released on January 31.

Notification 1/2013 sets out the permitted activities for foreign investors and the activities which require a joint venture (JV), and notification 11/2013 introduces various regulations on applying for an investment licence or MIC Permit, the use of land, transfer of shares, remittance of foreign exchange and the taking of security on land and buildings.

By and large, investment with 100 percent foreign ownership is permitted for the vast majority of business activities, including telecommunications, power generation, services, infrastructure projects, agriculture, hospitality and non-food manufacturing.

Retail and wholesale activities have been opened to foreign investment as well, subject to certain conditions. A relatively limited number of activities require a local partner, such as food production, beverage production, plastics and certain chemical industries, mining and real estate development. However, even for those restricted sectors, foreign investors may hold up to 80 percent of the shares.

Notification 11/2013 strengthens the land use rights by foreign-invested companies, including the possibility to lease land from anyone, and to take security on land and buildings. It also, in conjunction with other measures in Myanmar and abroad (such as the general licence issued by the US Treasury easing sanctions with respect to four Myanmar banks), made it easier to remit foreign currency overseas.

“Myanmar is a country where there are often significant differences between the theory and the practice. In our overview of how foreign invested projects work in Myanmar, we base ourselves not just on the laws and the new regulations, but on our on-the-ground experience with getting projects from inception to completion,” said Edwin Vanderbruggen, co-author of the report and a partner at VDB Loi, a specialised law and tax advisory firm with offices all over Southeast Asia.

Calling upon on-the-ground experience with ongoing investment projects and financing transactions, we tried to clarify how power projects are licensed, which approvals are granted in practice to distribution and retail, and how the authorities allow foreign investment in real estate, Edwin said. Joint venture requirement for foods manufacturing, beverages and mining and the new possibilities for taking security on land and buildings were also elaborated in the report.

Real estate development

“In practice, the ownership structure of a foreign-invested property project will very much depend on the land rights for the project in question,” Edwin said.

In Myanmar, freehold, granted land and government leased land are in practice the most relevant types of land when it comes to foreign investment.

For land that is privately owned, which has been granted to a local partner, or where the local partner holds a government lease, a JV is required for development of most types of property, including buildings, condominiums, apartments, offices, commercial space, houses in industrial zones and low-cost housing, the briefing note said.

In this case, the local partner will receive shares in the JV in return for transferring the land rights to the company, it added.

The report said a JV is also required for the construction and development of new townships, golf courses, recreational areas, factories and mills, bridges, highways, underground railroads and construction related to transportation.

“If the land is directly leased by the government to the project company, such projects are usually conducted under build, operate, transfer (BOT) basis and foreign investors may hold 100 percent of the project company,” Edwin said.

If a legacy building is involved, then a conservation management plan is also required. Large scale property projects require an Environmental Impact Assessment (EIA), the report said.

The provision of architecture services, construction consultancy services, production of construction materials supporting the urban housing sector, prefabrication of construction materials, construction of disaster-proof buildings, and the fixing and commissioning of machines and their parts are subject to a Mutual Recognition Arrangement (MRA) and must follow the Myanmar National Building Code’s rules and regulations, the note added.

Use of land by foreign investors

Foreign investors cannot actually purchase land, according to Transfer of Immoveable Property Restriction Act of 1987, but they can lease land from the government or from private parties (since this year) with the permission of the MIC.

“In practice, when the project involves the use of land, foreign investors need to agree to a draft lease agreement with the (public or private) land owner before submitting their investment proposal to the MIC,” Edwin explained.

The government can lease land directly to the foreign-invested company (often in the context of a BOT agreement), but it is more common that a local partner who has already obtained the government lease contributes the land rights to a JV company in return for shares, he added.

Taking security

Until recently, there was largely no regulation in Myanmar on taking security over land and buildings. Notification 11/2013 now specifically allows creditors to take security over land and buildings.

“The taking of security on bank accounts, receivables and movable goods is in theory possible, but it remains virtually untested and very uncommon in practice,” Edwin explained.

Every type of security, mortgage or charge taken by a company in Myanmar must be registered with the Deed Registration Office within 21 days of creation.

Myanmar Telecom Winners Should Safeguard Users: HRW

Posted in Myanmar, Technology, Telecommunications by Sherpa Hossainy on July 10, 2013

Companies should create strong rights precedent, protect users from illegal surveillance and censorship, the NGO says

Published in Myanmar Business Today (Vol 1, Issue 23) on July 11, 2013

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Myanmar’s new telecom licence winners should make a public commitment to strong human rights policies and broad transparency measures, international non-governmental organisation Human Rights Watch said.

Firms should say how they plan to protect users from illegal surveillance and censorship, given the current lack of legal human rights protections in Myanmar’s telecommunications law, HRW, which conducts research and advocacy on human rights, said in a statement.

On June 27 the Myanmar government announced the winners of two nationwide telecommunications licences, Telenor and Ooredoo. The companies and the government will finalise the licence process by September. The government also named French telecom giant Orange’s consortium as an alternate should one of the winners fail to fulfil its commitments.

However, the government has not yet promulgated a new telecommunications law nor enacted key reforms to protect the rights to privacy, freedom of expression, and access to information in the mobile and internet sectors.

“Burma’s long record of rights abuses should give pause to the two licence winners about government censorship, illegal surveillance, and even network shutdowns,” said Cynthia Wong, senior internet researcher at HRW. “The firms should put strong safeguards in place for their users, make clear that they will be transparent about government demands, and press the government to enact legal protections for rights.”

Myanmar’s draft telecommunications law has not been finalised, though the Ministry of Communications and Information Technology has reported that parliament will pass the law in July. The drafters are working behind closed doors and have not solicited input on recent versions.

While the latest draft has not been made public, a version reviewed by Human Rights Watch in March raised serious concerns that the new law would provide inadequate protections against abuses in a country with a long history of censorship and surveillance. Myanmar also has a slew of other problematic laws that restrict expression and are incompatible with other human rights, HRW said.

In a report released in May, Human Rights Watch expressed concern that existing censorship and security laws allow the Myanmar government or military to require the help of telecom companies to spy on or silence bloggers, activists, and journalists. Myanmar lacks an electronic privacy law to prevent arbitrary and overbroad surveillance practices, and the courts have no history of independence from the government. The Myanmar military retains broad power to declare public emergencies and take control of telecommunications equipment. In addition, rights-restricting laws that the authorities used in the past to silence critics have not been repealed.

Human Rights Watch on May 3 wrote to the 12 international telecom companies that had been approved to apply for a telecom licence to inquire about safeguards they had established or were planning should they win one of the two licences. The letter made specific recommendations consistent with guidance articulated in the United Nations “Protect, Respect, and Remedy” framework, the Guiding Principles on Business and Human Rights, and standards developed by the Global Network Initiative, a global multi-stakeholder initiative to protect free expression and privacy online.

Eight of the companies responded to Human Rights Watch’s letter in writing, including Telenor Group and France Telecom-Orange. Ooredoo, a state-owned operator formerly known as Qatar Telecom, has not responded to inquiries, HRW said.

Telenor and Orange are members of the Telecommunications Industry Dialogue on Freedom of Expression and Privacy and have committed to implementing the Industry Dialogue’s human rights principles. In March, the Telecom Industry Dialogue announced a collaboration with the Global Network Initiative to support and improve implementation of the companies’ human rights standards. Human Rights Watch is a member of the Global Network Initiative and has discussed the issues raised in Myanmar with Telenor and Orange directly.

“Burma’s investors and donors will be closely watching the steps taken by these telecom operators to protect the rights of their future customers,” Wong said. “These ventures may set the stage as to whether foreign investment can play an important role in improving the rights situation for the people of Burma.”

Human Rights Watch urged Telenor and Ooredoo to take several critical steps as they negotiate their operating licence and entry into Burma. At a minimum, the companies should put in place policies and procedures setting out how they will prevent and address human rights abuses linked to their operations, including through formal operating licenses or other agreements with the government, HRW said.

The rights NGO said such procedures should address how the company will respond to government requests for censorship, illegal surveillance, and network shutdowns during declared “public emergencies.” They should include information about how the company will resist requests or minimise their impact on rights, and report on how they have implemented these policies and procedures to the public, HRW statement said.

The companies should also identify and address human rights risks associated with their physical operations and key business decisions related to security arrangements or acquiring rights to land for installation of telecommunications equipment. The companies should vet any potential business partners to ensure they are not implicated in serious human rights abuses and secure commitments from partners to the company’s human rights policies.

Given the risk of complicity in rights abuses, the telecom firms should also strive to increase transparency around government restrictions on the rights to freedom of expression and privacy, Human Rights Watch said. The companies should secure permission to publish the terms of any operating agreements and publicly issue a regular transparency report on how they have responded to government requests to limit the rights to freedom of expression and privacy. The companies should report publicly on their progress in meeting their human rights responsibility as they finalise the terms of their entry.

Telenor and Ooredoo will compete with two local licensed entities, Myanmar Telecommunications Company and a consortium of other local companies. Myanmar Telecommunications Company will be formed when the government privatises the currently state-owned Myanmar Posts and Telecommunications Company, though the exact date for this transition has not yet been set.

The composition of the second consortium of companies is unclear, though media reports indicate that Yatanarpon Teleport, another state-owned enterprise, will be a leading operator in the consortium. Once the telecommunications law is in place, the government will also enact implementing regulations to manage the sector. However, the independent regulatory authority for the telecom sector will not be in place until 2015.

“Now that the telecom licences have been awarded, the winners have a responsibility to ensure their services are not used as new tools for censorship and surveillance,” Wong said. “The time for maximizing protections for rights is now, before operating terms are set in stone.”

Toshiba to supply modular data centre for Securities exchange system in Myanmar

Posted in IT, Myanmar, Technology, Yangon by Sherpa Hossainy on July 10, 2013

The company’s first modular data centre for overseas commercial project

Published in Myanmar Business Today (Vol 1, Issue 23) on July 11, 2013

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Japanese electronics giant Toshiba Corp last week won an order to supply a modular data centre for a securities exchange system in Myanmar, a statement said.

KDDI Corp, one of Japan’s largest network solution providers, will work as Toshiba’s partner for the project, which will be carried out by Daiwa Institute of Research Ltd, a major Japanese think tank and consultancy.

It will be the first time that Toshiba has supplied its modular data centre in an overseas market, Toshiba said in a statement.

Daiwa Institute of Research, together with Japan Exchange Group, is working with the Central Bank of Myanmar to open a securities exchange in Yangon in 2015.

Toshiba said it is seeking to expand sales in Japan and overseas, and the market for modular data centres is growing. “They offer shorter lead times and lower initial costs than building type data centres, and as they can be stacked it is very easy to add additional capacity on the same site,” Toshiba said.

In Japan, Toshiba has supplied modules to data centre operators, cloud operators and enterprises, and was heralded for energy efficiency.

“Toshiba’s modular data centre offers the robust structure of heavy gauge steel frame, along with side-air-cooling flow, which is better in a hot and humid climate like Myanmar’s than standard vertical flow. This new approach allows centres to integrate redundant systems, allowing continued operation in the event of a problem with one unit,” the company said.

A voltage stabiliser will also be built into the securities exchange modules, as power supply voltages in Myanmar can be irregular, the statement added.

Governments of Southeast Asia, including Singapore, are promoting incentives to attract investments, including data centres. In 2012, Toshiba developed and demonstrated a pilot data centre optimised for tropical climates, in cooperation with Singapore’s Nanyang Technological University.

The demonstration indicated that the new system had the potential to cut annual power consumption by approximately 30 percent, which is achieved by circulating unrefrigerated outside air in the cooling system, even in tropical zones.

“Building on the momentum of development work Japan and the advances achieved by the Singapore project, Toshiba will promote further sales of its modular data centres in Southeast Asia and seek to expand its global business in energy efficient, low cost modular data centres,” it said.

Toshiba opens Yangon branch

Posted in Investment, Myanmar, Technology, Yangon by Sherpa Hossainy on July 10, 2013

 

Published in Myanmar Business Today (Vol 1, Issue 23) on July 11, 2013

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Japanese electronics giant Toshiba last week in Yangon opened a branch office of their Singapore-based subsidiary, Toshiba Asia Pacific Pte Ltd, to establish a stronger presence in Myanmar.

Toshiba said in a release that the company will fully leverage “our technological progress and leading edge product capabilities to offer Myanmar people a better future.”

“Toshiba is delighted to make this new step forward in Myanmar,” said Hidejiro Shimomitsu, corporate senior executive vice president of Toshiba Corp. “We hope to contribute to Myanmar’s development across our product lines, from infrastructure solutions to home electronics. Our home appliance business in Myanmar started since the 1980s via distributors and our automatic washing machines are still the most popular brand in Myanmar.”

“Toshiba can support providing stable power generation and transmission solutions that provide the backbone for economic growth in Myanmar,” Tetsuya Yoneda, chief representative of the Yangon branch office, said.

“Currently in Myanmar, the power distribution per population is still limited to 25 percent, and this is planned to be expanded in the coming years. Toshiba has supplied equipment for Sedawgyi hydropower plant in 1985, and we aim to contribute more to the country infrastructure,” he added.

Toshiba said ensuring sustained growth will require broad investments in social infrastructure, including power generation and distribution, and Toshiba’s Yangon branch office will investigate the market and promote business in social infrastructure and other areas, such as consumer products.

Founded in 1875, Toshiba operates a global network of more than 590 companies, with 206,000 employees and annual sales of over 5.8 trillion yen ($61 billion).

 

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WE Holdings forms Myanmar JV

Posted in ASEAN, Investment, Myanmar, Yangon by Sherpa Hossainy on July 10, 2013

Aims to explore petroleum onshore project

Published in Myanmar Business Today (Vol 1, Issue 23) on July 11, 2013

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Singapore-based WE Holdings Ltd acquired a joint venture company in Singapore in a bid to assess potential petroleum, oil and gas, and related resources business opportunities in Myanmar, it said in a statement.

The JV, WE Dragon Resources Pte Ltd, was formed with Myanmar tycoon Nay Win Tun.

The company has entered into a non-binding memorandum of understanding with Nay Win Tun for a proposed collaboration to carry out petroleum operations projects in five target oilfields in Myanmar through a project company, the statement said.

Under the agreement, the project company will carry out petroleum operations projects, including the exploration of petroleum fields, drilling, petroleum extraction, and the recovery and trading of petroleum products, in Myanmar. The exploration activities will be carried out in Mandalay, Magway, Sagaing, Ayeyarwaddy divisions and Chin state.

The investment in WE Dragon will be funded by the company’s internal resources. WE Holdings and Nay Win Tun will each hold 50 percent of WE Dragon’s issued and paid-up share capital. The issued and paid-up share capital of WE Dragon will be increased to S$200,000 comprising 200,000 shares, WE Holdings said.

Strategically located near energy-hungry China and India, Myanmar has received keen interest from foreign investors since the United States and European Union lifted sanctions against the country. With a vast, untapped reserve of oil, estimated to be 50 million barrels, and 10 trillion cubic feet of gas, Myanmar has been inviting foreign energy companies to bid for exploration licences and oil blocks.

“As one of the oldest oil producers and the tenth largest gas exporter in the world, Myanmar promises immense opportunities. The country has been actively wooing foreign investors so as to unlock the potential of its huge oil and gas reserves, and we believe that we are well-placed to benefit from this trend,” WE Holdings said in the release.

The project company will also seek business opportunities and collaboration with small scale local owners of oilfields. The proposed collaboration is conditional upon the project company’s successful application of a large scale petroleum operations permit from the Myanmar government as well as the company and Nay Win Tun entering into definitive agreements regarding the collaboration, it said.

Nay Win Tun is the chairman of the Ruby Dragon Group of Companies, which has mining, manufacturing, agriculture, food and beverage, trading and hospitality businesses across Myanmar.

The company will also explore opportunities in the exploration, extraction/mining and trading of energy and metal resources and the production and trading of cement, sand and steel.

WE Holdings said it will now be seeking shareholders’ approval for the proposed new business prior to entering definitive agreements.

The proposed collaboration is subject to numerous conditions and there is no certainty or assurance that the parties will in due course enter into any definitive agreements.

WE Holdings recently proposed investment to own a stake in local Dragon Cement Co Ltd. Shares of WE Holdings Ltd jumped as much as 11 percent after the electronics manufacturer and distributor unveiled plans to invest in a Myanmar-based cement plant.

The company plans to buy a 20 percent stake for $20 million in Dragon Cement, a unit of the Ruby Dragon.

Foreign investment rules in practice in Myanmar (Part 4)

Posted in Agriculture, Investment, Legal, Myanmar, Yangon by Sherpa Hossainy on July 10, 2013

Part 4: Manufacturing of foods and beverages; non-food manufacturing; agriculture, forestry, livestock and fisheries

Published in Myanmar Business Today (Vol 1, Issue 22) on July 4, 2013

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Recently, international law firm Clifford Chance and VDB Loi have jointly released a briefing note on the practical implementation of the Foreign Investment Law in Myanmar. This is the fourth and final part of Myanmar Business Today’s series of sector-wise analysis based on the briefing. This week’s topics are manufacturing of foods and beverages; non-food manufacturing; agriculture, forestry, livestock and fisheries.

The Myanmar government implemented the country’s Foreign Investment Law (FIL) 2012 with two notifications or FIL Rules, creating a practical framework to match the government’s policy of welcoming foreign investment. Both notifications, 11/2013 of the Ministry of National Planning and Economic Development and 1/2013 of the Myanmar Investment Commission (MIC), were released on January 31.

Manufacturing of beverages

A joint venture (JV) is in principle required for the “production, blending, distilling, bottling, and distribution of beverages,” according to the rules. A JV is also required for barley fermentation and the production and distribution of products made from barley fermentation. In addition, a JV is required for all “purified water enterprises”.

“In practice, the commercial tax, a combination of an excise duty and a turnover tax, dictates how a producer of beer or spirits should be structured in Myanmar. The commercial tax weighs heaviest on the importation phase and the manufacturing phase of the supply chain, and investors may need to carefully devise a supply chain over different entities in Myanmar, keeping in mind unnecessary tax imposts and licensing restraints,” Edwin Vanderbruggen, co-author of the report and a partner at VDB Loi, a specialised law and tax advisory firm with offices across Southeast Asia, told Myanmar Business Today.

The rules say for the production, distribution and sale of soft drinks and other beverages, the investor must use at least 20 percent local raw materials for the first three years of production. Afterwards, the investor must use at least 60 percent local agricultural raw materials.

Manufacturing of foods

A JV is as a rule required for the “production, canning and distribution of foodstuffs except dairy products”, according to the rules. However, the foreign investor may hold up to 80 pecent in the JV as per current regulations.

“In reality a foreign investor would not purchase shares from an existing Myanmar shareholder in a local company, or subscribe for shares issued by such existing Myanmar company. In other words, the JV company would not be the existing company of the local partner. Instead, a new JV company is established under the FIL. Licences, assets and land leases are transferred from the local partner company to the new JV company through a contribution in capital. The transfer is done based on the terms agreed between the parties, subject to MIC approval,” Edwin said.

For the production, distribution and sale of vegetable and animal oils, at least 80 percent local raw materials must be used, while for production of Monosodium Glutamate (MSG), local raw materials must be used for the first three years of production.

Non-food manufacturing

Generally, there is no requirement for a local partner when manufacturing non-foods. A JV is required only for a few selected sectors including the production, distribution and sale of cotton threads, various types of paper, rubber, plastic and leather.

“Notification 1/2013 does not set out a lot of local content requirements in non-food, cosmetics and cigarettes being the main exceptions, but in our experience the Ministry of Industry may request the use of a certain amount of local raw materials,” Edwin explained. The Ministry of Industry provides recommendations to the MIC about the feasibility of proposed manufacturing investment projects.

Land used for manufacturing that is leased from the government or private parties must be obtained with the permission of the MIC. “Generally a minimum capital amount of $500,000 is required for manufacturing companies with an investment permit,” Edwin said.

Agriculture, forestry, livestock and fisheries

“Currently, we mostly see interest in palm oil, sugar, rubber, rice and livestock. Although some agricultural and livestock activities feature on the list of activities that require a JV, it is our view that the government may in practice decide to allow large investment projects in this field that are considered particularly beneficial to the country on a fully foreign-owned basis,” Edwin said.

In most cases, the government can offer land to the investor that is suitable for the project, either through the Ministry of Environmental Conservation and Forestry or the Ministry of Agriculture and Irrigation. Different lease prices and maximum sizes of plots apply depending on the authority and the status of the land.

Forests are normally not available for investment projects, but degraded forests may be leased for various projects, including wood-based industries and reforestation. Although the union government in theory has final say, the local authorities also need to cooperate with the allocation of land for a project. If the land is already in use by local farmers or residents, the resettlement and compensation may be particularly challenging and at times a major risk to the completion of the project.

A JV is required for small-scale agricultural businesses, as well as for agricultural businesses that do not use modern machinery. A JV is also required for the “growing and planting of traditional medicinal herbs (plantations),” as well as the “production and distribution of hybrid seeds”, the rules say.

A foreign investor involved in the development of modern farm land, production and distribution of seeds, fertiliser, pesticides, mechanised farm tools and machinery or crops must obtain a confirmation from the Union Government Board and comply with the guidance of the Ministry of Agriculture and Irrigation.

For livestock and fishery activities, a JV is required for small-scale livestock businesses, livestock businesses that do not use modern machinery and fishing in lakes, inland waters and from shores. Investors wishing to fish offshore in Myanmar territorial waters for saltwater fish, shrimp and other marine animals must operate through a JV and obtain the prior permission of the government.

According to the rules, investors involved in fresh or saltwater fish breeding may not breed such fish as would affect Myanmar’s biodiversity. The production of bee products must be conducted in accordance with Good Manufacturing Practice (GMP) technology. Investors involved in lab testing of marine products must perform such tests in accordance with ISO 17025, the rules say.

DuPont to foray into Myanmar

Posted in Agriculture, ASEAN, Myanmar, Technology, Yangon by Sherpa Hossainy on July 10, 2013

Eyes agriculture and sustainable energy solutions

Published in Myanmar Business Today (Vol 1, Issue 21) on June 27, 2013

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American science and chemical giant DuPont has set its eyes on Myanmar as part of its ASEAN expansion strategy and will open office in the Southeast Asian country this year, a top executive said.

“Our regional team has done a lot of good work to get us started in Myanmar. We are in the process of getting all the government permission and finishing other formalities, and our office will open by the last quarter of this year,” Rajeev A Vaidya, the Delaware-based company’s President of South Asia and ASEAN, told Myanmar Business Today.

“There’s a lot of potential. As we come into Myanmar and we see those opportunities, we would certainly like to be a part of that,” he added.

DuPont, founded in 1802, describes itself as a “global science company” and employs more than 70,000 people in 90 countries and has a diverse array of products. Garnering a revenue of $38 billion in 2011, DuPont ranked 72nd in the Fortune 500 ranking in 2012.

Emerging markets contributed to 34 percent of DuPont’s sales in 2011 and half the company’s agricultural sales are outside the US. DuPont also spends 5 percent of its revenue in research and development (R&D).

Rajeev Vaidya, Hsing Ho

Rajeev A Vaidya (L), Dupont’s President of South Asia and ASEAN, and Hsing Ho, managing director for ASEAN. Sherpa Hossainy

DuPont businesses are organised into five categories, known as marketing “platforms”: electronic and communication technologies, performance materials, coatings and color technologies, safety and protection, and agriculture and nutrition. Agriculture contributes the greatest share of DuPont’s revenue, $10.4 billion last year, up from $9.17 billion in 2011.

 

While DuPont will “bring all our offerings” in Myanmar, Rajeev said the priority would be agriculture and sustainable energy solutions. “We will offer anything to ensure food security for the Myanmar market. If you look at the development stage of Myanmar, the priority will of course be on agriculture at first. Enhancing the farmers’ livelihood and productivity through technical assistance would be the initial focus,” he explained.

“We will also look at sustainable energy because in a geography like Myanmar there’s always need for sustainable energy like biofuel and solar, and solutions that improve energy efficiency,” Rajeev said. Technologies that help protect people, assets and the environment through improved industrial processes and lowering the carbon foot print will be introduced, he added.

DuPont’s agriculture division makes and sells hybrid seed and genetically modified seed, some of which goes on to become genetically modified food. Rajeev said the company will bring a number of different solutions to the farmers including seeds and crop protection. “These solutions help the farmers to get the most value out of every acre. We not only want to make this solutions available, but we also want to do it in a way that we actually engage the farmer community in the best agronomic practices on using those solutions to create the best outputs.”

The DuPont South Asia and ASEAN President said the company will also invest in educating farmers, and in localising and enabling them to use the technology.

Rajeev said at a World Economic Forum session on agriculture and food security that science can play a critical role in achieving food security solutions. “Over 10 million farmers benefit from our solutions. We are working on how to grow more food with less land, and science-powered solutions is relevant for this approach. Also, science has to be put in the hands of the farmers to empower them. Collaboration will unlock the true potential of science.”

Rajeev said young people should be encouraged to adopt agriculture as a profession, adding that average age of a farmer in Southeast Asia is over 60. However, Rajeev said it’s not going to be an easy challenge to lure young people into agriculture.

“It’s a major challenge. We have to change the way a generation thinks. Is that possible? Yes. Can that be done by DuPont only? No. That’s where the ecosystem of collaboration comes in.”

“That’s a problem we must solve. If we don’t make farming an attractive business for young people it becomes a sustainability issue. A big part of the solution is to actually make farming profitable for small farmers. As that happens, some fundamental building blocks can be put in place through science and in collaboration with the government.”

Hsing Ho, managing director for ASEAN, said in this regard, “There is a great potential to make farming more productive and profitable. Therefore the profitability is on the discussion table and people say who is going to reap the profits. From our perspective, it is about the notion of equitable distribution of wealth.

“If we can bring up the value of creation, we would be able to split those values more equitably with the ones in the value chain, by putting them in the centre. That’s how we create more potential for the younger people to make them more excited about it.”

Hsing Ho said farming is not only about “hard work and sweat.” “It’s about applying the right technology. When farmers’ income goes up it results in more mechanisaiton, thereby increasing productivity. When farming becomes no longer a hard work and more tech-based young people will get encouraged.”

However, Myanmar also faces its own problems such as complete lack infrastructure and a weak supply chain. Most Myanmar farmers have been trapped by very high costs due to the lack of infrastructure, while internal transport costs are five times higher than in Thailand and 20 times higher than in China.

Rajeev said: “There has to be collaboration with the government where the government oragnisations are investing in the infrastructure and simplifying the regulations so that new technology can come in. Farmers, companies, governments and NGOs can work together to create a greater market access.

“The problem is when you look at the whole thing it sounds so big and so complex that nobody wants to touch it. There’s an old Chinese proverb that a thousand-mile journey starts with a single step. So, we just got to start. We’ve heard very positive comments from the government and when we make progress things will continue to fall in place.”

Bangladesh sees billion-dollar trade potential in Myanmar

Posted in Bangladesh, Dhaka, Economy, Export and Import, Myanmar, Yangon by Sherpa Hossainy on July 10, 2013

Renews pledge to boost cooperation

Published in Myanmar Business Today (Vol 1, Issue 21) on June 27, 2013

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Bangladesh and Myanmar can increase their bilateral trade up to a billion dollar if service-based trade can be bolstered, a top Bangladesh government official said.

“Our current bilateral trade is mainly goods-related, but the service-related trade hasn’t expanded that much. Bangladesh has an established service sector in banking and insurance, and these sectors haven’t developed much here. There’s also good potential for pharmaceuticals and IT services,” Md Shahidul Haque, foreign secretary of Bangladesh, told Myanmar Business Today.

“There are opportunities for expanding the exchange of services. The potential is huge. It can definitely cross the billion-dollar mark if we can add the services sector in our trade,” he said.

The bilateral trade between the two neighbours amounted to only about $79 million in 2011-12 fiscal year, while it stood at $190 million in 2010-11 fiscal. Bangladesh exported goods to Myanmar worth $13.45 million during the fiscal year 2011-12.

Bangladesh Foreign Secretary

Md Shahidul Haque (L), foreign secretary of Bangladesh, with Anup Kumar Chakma, ambassador of Bangladesh to Myanmar. Sherpa Hossainy

“At first we want to take the current trade volume up to $500 million,” Shahidul said. Myanmar was in a difficult situation and under various sanctions, so increasing the trade volume was hard as “we had to work within certain limits,” he added.

Shahidul said Bangladeshi private sector can facilitate in providing technical assistance to Myanmar, especially in garment industry, being the second largest garment exporter in the world behind China. “Exchange of technical expertise will be discussed during the next Joint Trade Commission meeting,” he said.

The Bangladesh Foreign Secretary was in Myanmar from June 12-17 to attend the 7th round of Foreign Office Consultations (FOC), where foreign secretaries of the two countries meet and review a range of bilateral political, economic and security issues. “We looked at ways to strengthen our relations and how both countries can grow,” Shahidul said, adding that trade and border issues were the main focal points.

During the talks Myanmar welcomed the four-country “Kunming initiative”, a sub-regional organisation that includes Bangladesh, China, India and Myanmar (BCIM), born in 1999 out of the attempts to link the development plans of the southwestern Chinese province of Yunnan to India’s ‘Look East policy.’ BCIM is a sub-regional organisation of Asian nations aimed at greater integration of trade and investment between the four countries.

“For a long time it was a Track II initiative but India and China has brought it up to Track I. Bangladesh and Myanmar has now decided to actively take part in the initiative and we will join the Track I force,” Shahidul said.

‘Track II diplomacy’ is a specific kind of informal diplomacy, in which non-officials engage in dialogue with the aim of confidence-building, while the term ‘Track I diplomacy’ refers to official governmental diplomacy, or a technique of state action, which is essentially a process whereby communications from one government go directly to the decision-making apparatus of another.

Shahidul led a 14-member Bangladesh delegation to the talks, while his counterpart Deputy Foreign Minister U Thant Kyaw, led a 20-member Myanmar delegation. Ambassador of Bangladesh to Myanmar Anup Kumar Chakma, along with senior officials from seven ministries and agencies of the Bangladesh government also took part.

During his visit in Nay Pyi Taw, the Foreign Secretary called on Deputy Ministers for Commerce, Home and Electric Power, and concerned members of the delegation met the Ministry of Transport officials. Both countries acknowledged the importance of increasing connectivity and expressed intention to sign the revised air service agreement soon.

“We will quickly start the air link programme. However, it’s not easy for the government to start the air link; private sector also has to take the initiative. We hope the agreement will be finalised next month” Shahidul said.

In a bid to have the best of neighbourly relations, Bangladesh and Myanmar pledged to begin an era of partnership based on trust and confidence for stronger economic ties and stability along the borders. To enhance security and stability at their common borders at land and sea, the two sides expressed willingness to address a range of trans-boundary crimes along the borders, including human, drugs and arms trafficking, and money laundering. The two sides also agreed to bolster regular interactions between the two border forces as well as civil administrations of the bordering districts of Bangladesh and Myanmar.

The two countries talked about the establishment of direct coastal shipping link and agreed to complete all necessary formalities for the purpose. They also agreed to renew the expired Agreement on Cultural Cooperation and conclude a memorandum of understanding on cultural exchange programme.

Bangladesh offered to arrange short diplomatic training courses for the mid-and junior-level diplomats of Myanmar, and invited Myanmar to send a delegation to an international conference on peace, tolerance and non-violence to be held in Bangladesh later this year. Bangladesh also proposed greater exchanges between Buddhist scholars to deepen intercultural understanding between the two countries.

The bilateral talks also focused on cooperation under regional frameworks like the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and BCIM. BIMSTEC is a regional cooperation organisation involving Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal. Myanmar is the current Chair of BIMSTEC and will hold the next BIMSTEC Summit in early September this year.

The Myanmar delegation said the discussions will “strengthen goodwill, confidence, mutual trust and understanding between the two countries,” while Shahidul hoped “the existing trade barriers will be removed soon in a bid to strengthen the political, cultural and economic cooperation between the two neighbours.”

Thai firm moves to Myanmar following Laos success

Posted in ASEAN, Finance, Legal, Myanmar, Yangon by Sherpa Hossainy on July 10, 2013

Offers help to Myanmar government, state enterprises and corporations to raise capital from Thai bond market

Published in Myanmar Business Today (Vol 1, Issue 21) on June 27, 2013

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Thailand-based advisory firm Twin Pine Consulting will help Myanmar corporations to raise much-needed capital from the Thai bond market after it successfully manoeuvred the Laos government to raise 1.5 billion baht ($50 million) from the coveted regional bond market, its top executives said.

The Laotian government in May issued three-year baht bonds in Thailand worth THB1.5 billion with an interest rate of 4.5 percent per annum through private placement. Twin Pine acted as the Laos government’s financial adviser. The transaction was the first unrated sovereign or quasi-sovereign credit to be issued in the baht-denominated bond market and established Thailand’s image as a viable regional debt capital hub.

“We want to help at least a couple of Myanmar companies, its government or state enterprises to raise capital from the Thai bond market. We will act as a matchmaker as we help them launch in the market. We can also get the rating agencies to come and rate them, for example the Thai Rating and Information Services (TRIS),” Adisorn V Singhsacha, managing director and partner of Twin Pine, who also has over 15 years of international banking experience, told Myanmar Business Today. The whole idea is about increasing the level of professionalism and the outreach of local companies and also Myanmar as a country, he added.

“We still haven’t identified who is going to be the underwriter for the bond, but it could be either a Thai bank or a foreign bank. For the Laos project we worked with Thai Military Bank (TMB) who worked as the underwriter,” Adisorn said.

Adisorn V Singhsacha, managing director and partner of Twin Pine.

Earlier this year, Thailand’s Ministry of Finance granted Laos approval to issue baht bonds as a contribution to the Asian Bond Markets Initiative and the ASEAN Economic Community blueprint that aims at improving economic relations in the region. In an effort to promote the Laos deal, the Thai government removed a number of barriers, including the waiver for a required rating. The Laos deal demonstrated that there is institutional appetite for a high-yielding name, and is expected to set a template for other regional sovereigns such as Cambodia, Myanmar and Vietnam.

The Securities and Exchange Commission (SEC) of Thailand cleared one barrier for the bond in June last year, when it approved the sale of unrated paper. The last hurdle was removed when the Thai Ministry of Finance relaxed a rating requirement specifically for foreign governments or issues with a foreign government guarantee. Previously, only foreign issuers with an investment-grade rating could apply for the approval.

Twin Pine was appointed as the advisor for the Laos Ministry of Finance and its legal partner LS Horizon played a major role in getting the state-owned Electricite Du Laos (EDL) listed in the newly-formed Laos Stock Exchange.

LS Horizon Ltd is a regional law firm which has offices in Laos, Singapore and Myanmar, and has plans to expand into Indonesia and Cambodia. “We’ve been helping our Thai clients through our Myanmar office to set up businesses, giving legal advice on investment. Our clients range from mining giant Bangpu, Ital-Thai Development Plc to Siam Cement and some Thai banks,” Chiridacha Phungsunthorn, a partner at LS Horizon and also partner and director at Twin Pine, told Myanmar Business Today.

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Chiridacha Phungsunthorn, a partner at LS Horizon and also partner and director at Twin Pine.

“We have the same aspiration and the same philosophy. Twin Pine is a boutique firm and it operates in a flexible and dynamic manner with a focus on Greater Mekong – Myanmar, Laos, Cambodia and Thailand, and LS Horizon also shares the same focus,” Adisorn said.

The Laotian government used to raise funds from various sources such as borrowing from overseas banks or international organisations and issuing kip-denominated bonds. Twin Pine analysed Laos’ borrowing capabilities and found that Laos could diversify its borrowing to keep financing costs low and less dependent on traditional sources.

“We advised the Laos government to step forward from government to government (G2G) lending, and help took them to the international level by putting them in a cross-border capital market in Thailand, which has plenty of resources and funds. We said why not raise the capital in the Thai market, which would also alleviate Laos’ level and integrate it into the ASEAN community,” he said.

Many factors helped the launch of the Laos bond, Adisorn said. Part of the Laos government revenue is in baht as it sells electricity to Thailand. With a matching debt and income, eliminating currency risk from fluctuating exchange rates became easier.

Adisorn said Twin Pine’s philosophy is to meet the top level executives of an organisation including chief executives, directors, chief financial officers, owners and chief investment officers. “These are the people who make decisions. Sometimes these companies see that the resource in the organisation is not ready to response to a specific need. We act as a bridge to help generate ideas and execute top management’s wishes when gaps exist in expertise or readiness and resources. We say, ‘We are here and we can get it done,’”

The advisory firm is also currently raising funds for a real estate project in Yangon. “We have been in talks with land owners in Yangon to build a hospitality and serviced-apartment project. We will help them raise over $20 million from outside Myanmar. This won’t be a listing, only a private placement with high-networth individuals.”

Despite some obstacles like proper land valuation, Adisorn thinks Twin Pine would be able to raise the funds pretty soon. “The prospect is very good and we have to highlight this to the investors. I think we can do it for them by the end of this year; if I’m optimistic then I’d say in three months, Adisorn said. Twin Pine has already studied the foreign investment law in Myanmar and LS horizon will assist in forming an ‘Investment Vehicle’, he added.

“The ROI could be about four and a half years after construction period and now we are looking for some investors who will just put in $20 million. It’s all about finding the people who has the appetite for this kind of market.”

Adisorn believes there’s a big opportunity for Myanmar conglomerates to reach out to international investors and raise funds. “Myanmar is now the darling for new investments. We have already identified a few large corporations and we aim to work with those to raise funds in a similar fashion [like Laos] in the Thai capital market. These customers range from state enterprises, banks, large holdings companies to airlines.

“Our next step is to work with a rating agency in Thailand to do the rating for our clients. If we can get large Myanmar corporations, we can approach the rating agency in Thailand to do the rating and the pricing can be done according to the market demand and supply.”

Starting the discussion is the first step but making it happen is not easy, Adisorn said, adding that the Laos deal took two years to realise. “Now I can say that we have been successful in a virgin market and we are ready to move on to the next level. We are looking at more deals in Laos, new deals in Myanmar and Cambodia. We are likely to see some deals in those countries by the end of this year.”9

However, there’s no surefire way to raise capital, Chiridacha said. “It’s about strategy and how you want to perform according to the market. However, by listing you give away your share of the company. But through bonds you can just raise the capital.”

Adisorn added: “You have everybody believing in Myanmar, so why give away your equity and ownership if there is no synergy. I think you can get cheaper finance through bonds.

“Equity is expensive, unless there is a strategic value. If you know your company is growing and in three years time it’s going to be double or triple in value, why would you give that away? You should keep that as long as you can and if you can find someone to lend your money you should rather borrow the money. Myanmar companies have very strong growth prospects and Myanmar is just starting. So, to sell off equity, without real added value would not be advisable now”

The veteran financial advisor said there are no hidden dangers for Myanmar companies while raising capital from bond markets. “The only danger is for the ones who will buy the bonds if the Myanmar companies don’t perform. So, it’s completely safe,” he said.

From its experience in greenfield markets in Southeast Asia Twin Pine sees Myanmar companies have huge potential to raise capitals from the Thai bond market. “Myanmar is like a rough diamond now. We can see potential companies and we just have to market them.”

Adisorn thinks Myanmar companies should aim to raise capital from Thailand as there are shared values and greater understanding between the two countries.

“Myanmar companies shouldn’t go to New York or London first, because they are not as recognised there. We also don’t think we need to wait for outsiders to come in. We are capable enough and we have regional knowledge plus the cultural background. It’s not a disadvantage for us to be a regional firm, it’s an advantage. We can tell from our experience, ‘In 15 years I know where you [Myanmar] will be.’”

He added: “We go to places in Myanmar and we explain financial instruments like bond or stocks to top officials because they haven’t been exposed to it yet. But people from leading Investment Bank, for example, may not do this for you. At the end of the day, some of these Western establishments will have to learn from us.”

Adisorn claimed what Twin Pine is doing hasn’t been done before. “We matchmake, we give simple and interesting advice. If we present a scenario to someone they would say, ‘I know what you are talking about.’”

“We would like to establish a circle of trust here. We believe in our nations, be it Laos or Myanmar or any nation in Southeast Asia. If we help each other grow, we will see exponential benefits.”

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