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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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.”

SingTel prods the game up a notch

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

Says “far exceeded” licence requirements, promises 95pc coverage in 3 years and transform people’s lives

Published in Myanmar Business Today (Vol 1, Issue 20) on June 20, 2013

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Telecom giant SingTel ramped up the telecom tussle ahead of the licence winner announcement by saying that it has “far exceeded” the government requirements and vowed to provide 95 percent network coverage in three years.

Singapore Telecommunications Ltd (SingTel) and its partners – KBZ Group and Myanmar Telephone Company (M-Tel) – are one of the 11 finalists in the race for two lucrative telecom licences in Myanmar.

“The consortium’s proposal far exceeds the government requirements in many areas, including network coverage plans and service prices,” Mark Chong, SingTel CEO International, Group Consumer, said at a press conference. The consortium will build a world-class mobile network, which will cover 95 percent of Myanmar population in 36 months, he added.

The SingTel CEO told Myanmar Business Today on the sidelines of the press conference, “We are confident in terms of our network reliability, quality and coverage. We will offer competitive package and innovative value-added products. We are going to offer competitive SIM prices and call rates in line with the regional standards. I don’t think we can charge supra-normal rates.”

Mark said: “With SingTel’s vast operations in many parts of the world, our knowledge in building new infrastructure and services from the ground up is unrivalled. We want to bring more than just a domestic telecom infrastructure. We will bring international connectivity that will improve the quality of lives of the people.”

“With the strength of our local partners KBZ and M-Tel, we believe through our investment, we can develop Myanmar’s telecom industry and create employment,” he added.

SingTel operates in both developed and emerging markets like Indonesia, India, Thailand and the Philippines, serving 468 million customers.

The telco said in a statement that together with the KBZ Group and M-Tel, which possess strong local presence and knowledge, the consortium is well-positioned to build a quality network to connect people, promote business activities and spur economic development.

Asked whether the government’s plan of achieving 80 percent mobile phone penetration by 2016 is realistic, Mark Chong said, “I think the government can answer it better. But we will try to do our best [to achieve that].”

However, one of the partners of the consortium M-Tel’s CEO Jonathan Myo Kyaw Thaung told Myanmar Business Today, “I believe it’s realistic and possible.”

He added, regarding the consortium’s strategy to build infrastructure in Myanmar’s conflict-prone areas, “This conflict areas are not new. The government has known about them for a while. The requirement fixed by the government tells us which township to cover and by when; and there’s leniency in terms of establishing networks in some parts of those conflict areas.”

To develop Myanmar’s international infrastructure, SingTel said, it will invite the government to participate in feasibility studies for future satellite programmes and lend its assistance in the launch of a Myanmar national satellite. “We are not saying this regardless of winning or losing the telecom. As one of the lead parties planning the Southeast Asia-Middle East-West Europe (SEA-ME-WE) 5 submarine cable, we want to include Myanmar as an ASEAN friend.”

U Nyo Myint, managing director of KBZ Group, said: “Our 20-year experience on the ground running large companies provides us with unique insights into the local operating environment. We believe that the consortium’s proposal will elevate Myanmar to be able to compete globally in the upcoming decade.”

Telco licence committee releases prequalification documents

Posted in Business, Myanmar, Telecommunications by Sherpa Hossainy on July 9, 2013

Published in Myanmar Business Today (Vol 1, Issue 11) on April 4, 2013

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The government committee overseeing the bidding process of two nationwide telecom licences last month released a document, which provides an insight into the committee’s priorities, the required structure for the operators and some of the tender logistics.

The Telecommunications Operator Tender Evaluation and Selection Committee released the 70-page “Prequalification Questions and Answers” document on the Ministry of Communications and Information Technology’s website on March 21.

VDB Loi, a specialised law and tax advisory firm that has more than 60 transactional lawyers and tax advisers working in offices in Cambodia, Indonesia, Laos, Myanmar and Vietnam, released an analysis of the document on March 22, clarifying the documents for potential bidders.

Edwin Vanderbruggen, a partner at VDB Loi, who also co-authored the analysis, said, “The required experience component of bids is a hard and fast rule.”

“The committee will not be flexible on the operational requirements for the experienced operator (four million subscribers in one country, one million subscribers in a second country). In the Q&A, the committee rejected to accept for example secondary experience of one million subscribers in two countries,” the analysis said.

“The committee confirmed that the licence shall grant the holder the right – but put them under no obligation – to provide both fixed line and mobile services. The licensee will also have the ability to provide internet services. International gateways will also be allowed,” VDB Loi’s analysis said.

The committee also clarified that bids cannot be changed later or the bid will be immediately ruled out. “One cannot put in a bid alone if one was prequalified as part of a consortium. One cannot put in a bid with a consortium if one was prequalified as a member of another consortium,” the analysis said.

Regarding transfer of shares in the Myanmar company that receives the licence the clarification said, “After the licence is awarded, the shares in the Myanmar registered company can be transferred, but with permission from the authorities.” Also there will be only one experienced operator in a consortium.

“Every Applicant that meets the requirements will go on to the next round, the invitation to tender. This also means that there is no maximum number of prequalified applicants,” the analysis explained.

The new draft of the Telecom Law is set to be released on April 11, the committee announced.

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