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.

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