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Myanmar rushes power plant projects to avoid more blackouts

Critics say harsh contract terms are scaring off potential bidders

A woman works at a sewing machine during a power outage in Yangon on May 24.   © Reuters

YANGON -- Myanmar's government is trying to address the country's worsening power shortage, aiming to add 1,072 megawatts of new electricity generating capacity ahead of elections in late 2020.

The move reflects concerns about growing public dissatisfaction over crippling power blackouts and price increases to help fund a string of power plant projects.

The energy ministry said that a consortium led by VPower Group, a Hong Kong-listed company with close links to Chinese state-owned enterprises, including CITIC and train maker CRRC, had won bids for four out of five of the emergency projects, totaling 920.54 MW.

Three plants will be fired with imported liquefied natural gas, while one will rely on gas supplied by the government. For all three LNG projects, with a generating capacity of 900 MW, VPower is partnering with the state-owned China National Technical Import & Export Corporation.

The contract to build the fifth plant was awarded to a Chinese consortium led by another state-owned company, China Energy Engineering Corp. The tender called for a 151.54 MW gas-fired power plant in Yangon.

Letters of acceptance were issued in early September, the ministry said, noting the companies had started "carrying out planning works." The five projects are expected to produce a total of 1072.08 MW by the summer of 2020, it added.

In the short term, the government, led by State Counselor Aung San Suu Kyi, is betting on these emergency power plants to forestall a repeat of last summer's severe blackouts. But the growing energy shortfall across the country will hamper that effort until the government can attract more investment into new gas and hydropower stations, and renewable projects.

Myanmar's electricity charges for households and businesses were raised substantially in July, a move the ministry hopes will help fund its drive to boost electricity supplies ahead of national polls scheduled for November 2020.

"Now that electricity tariffs have increased, people will be less tolerant of power disruptions," said Pyi Wa Tun of Yangon-based Parami Energy. "If the power projects cannot be done on time, and disruption kicks in next hot season, the government's credibility would be at risk."

Critics have questioned the terms of the tender, including the one-month time frame that companies had to prepare and submit bids. The ministry did not give a reason for the tight deadline, despite complaints from the industry that few companies could meet it.

"No reputable power companies will take part in the [tender] process if there isn't sufficient time," said Parami's Pyi Wa Tun.

Jeremy Mullins, country director at regional advisory company Vriens and Partners, cited requirements for the plants to go into operation by next summer as another hurdle.

Other issues for potential bidders include the ministry's requirement for the use of gas, rather than other fuels, and the unusually short term of the contracts that only lasts five years from the start of commercial operations. For multinational enterprises, the government's decision to limit payment to local currency was also an issue as many of their input costs, including for LNG, are in foreign currencies, particularly dollars. Hefty daily fines for missing the completion deadline were another problem.

In response to the criticism, a VPower spokesperson told the Nikkei Asian Review that the company is "a specialist in fast-track distributed power generation," and pointed to its "timely delivery of reliable electricity to Myanmar since 2015."

A gas-fired power plant on the outskirts of Yangon: The World Bank estimates Myanmar's peak electricity demand will more than triple by 2030. (Photo by Yuichi Nitta)

If successful, the four new projects will put VPower's total generation capacity in Myanmar at 1,280 MW, more than a third of the country's dry-season available capacity, which stood at around 3100 MW in 2018, according to ministry estimates.

About 40% of Myanmar's people have access to electricity, which is currently produced by 20 gas-fired and 62 hydropower stations, and one coal-fired plant. Demand is rising by 15% to 16% a year, according to official data.

Aung San Suu Kyi's administration has developed little new generating capacity since taking office in 2016, with most new projects initiated by the previous Thein Sein government. Likewise, the hydropower sector has attracted virtually no foreign investment under the new government.

Preliminary agreements were signed previously with utility companies from France, Norway, Austria and Singapore, to build dams for hydropower projects, but no progress has been announced. An executive with one developer blamed the energy ministry's reluctance to open up the sector to foreign companies. Local players have limited experience building power stations, he added.

The ministry has recently been dogged by corruption allegations. Two senior ministry officials involved in hydropower policy were charged by Myanmar's Anti-Corruption Commission in September. The watchdog continues to investigate the ministry, but has not said what it is looking into.

In other efforts to increase energy supplies, Myanmar hopes to step up exploration in offshore gas fields. Domestic use of gas from these fields is limited by export agreements that Myanmar has with Thailand and China. In 2017-18, these contracts were worth around $3.1 billion, roughly half Myanmar's total export revenue.

The government plans to hold an international bidding round this year for gas concessions, the first since 2013-14, releasing 15 offshore and 18 onshore blocks. But the bidding has been delayed, likely because the ministry wants to enact relevant legislation, according to another industry insider.

With oil prices hovering in the $50 to $60 a barrel range, versus $90 to $100 in 2013-14, there may be less interest than before. Jordan Zele, country director at FMR Research & Advisory, said the lower prices may dampen appetite for riskier investments, such as Myanmar's offshore blocks, which entail more uncertainty in terms of both government policy and potential discoveries. But he said the real problem is the terms of the contracts.

"The fiscal terms for private firms laid out in the current production-sharing contracts -- created when oil prices were high -- do more to discourage bids from major companies than the global oil price," Zele said.

For now, businesspeople in Yangon hope that the "emergency move" can succeed. Otherwise, they are in for a tough time. "Even for those factories, hotels and offices [that] have backup generators, the cost of diesel power generation and the increased electricity tariffs could cost them a fortune next year," said an industry consultant.

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