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Myanmar Crisis

Myanmar energy crisis deepens as power plant investors balk

Military's new minister signals a tougher approach toward businesses

After the military takeover in February 2021, foreigners who had invested in Myanmar's energy sector began fleeing the country, leaving severe power shortages in their wake.   © Reuters

YANGON/TAIPEI -- As Myanmar braces for its crippling power and economic crises to intensify, there are fears the military regime will get tough with investors and push ahead with controversial energy projects.

Military authorities in March were forced to impose countrywide power cut schedules, according to leaked documents reported by Burmese media Khit Thit. But acute shortages worsened after the April water festival holidays, driving households and businesses into deeper desperation.

In response, the regime has approved a hydroelectric dam proposal in Shan State, reshuffled and restructured the energy and electricity ministerial structure and reportedly threatened to blacklist Chinese solar power developers with stalled projects on their hands.

"After the coup, all LNG plants were switched off and almost all the solar projects planned under the National League for Democracy [NLD] government were canceled, and there were attacks on the power lines," Guillaume de Langre, a former adviser to Myanmar's then-Ministry of Electricity and Energy (MOEE), said in an interview with Nikkei Asia. "The electrical engineers cannot fix a lot of these lines, because the junta doesn't control the whole country."

De Langre served as an MOEE adviser for two years until 2020. Based in the capital, he is seen as a top expert on Myanmar's electricity sector.

"Myanmar won't return to pre-coup levels of electricity production this year or next year, perhaps in 2024," he said. "It is going to take much longer for Myanmar to get back on a schedule of electrifying the population and providing enough electricity to those connected to the grid."

Over 40% of Myanmar's population lacks access to grid electricity. In rural areas, where most people live, over two-thirds of households rely on candles, kerosene and batteries. Businesses that have the resources often rely on their own diesel generators when power cuts hit.

Until February 2021, Myanmar's power generation capacity in the dry season -- when output from hydropower plants is low due to a lack of water -- amounted to 3,100 megawatts. It was generated by 20 gas-fired, 62 hydropower and one coal-fired plant.

However, the political crisis put existing operators in trouble and led to planned investments being canceled.

Two LNG plants that can produce a combined 750 MW and are run by China's Citic-backed VPower suspended operations. Three dams in central Myanmar's Baluchaung region were taken offline due to attacks on the grid, and most of the 29 solar projects approved under Aung San Suu Kyi's government in 2020, which together can generate around 1 gigawatt, were canceled, de Langre said.

In addition, construction of the 111 MW Tha Htay Dam, which started in 2008, was further stalled.

Decisions by Chinese and other foreign operators to quit Myanmar or pause their operations after February 2021 highlight the challenging business environment for power investors and how much the military takeover has damaged access to and investments in grid electricity.

The power generation sector needs foreign investment and technology, said a Burmese business person in Yangon who leads one of the local energy companies. "Myanmar is now a very risky place for international players, and the only major option we have is the Chinese."

The dismal electricity situation is holding back Myanmar's embattled economy, already hurt by the political crisis and COVID-19. It is also severely undermining the regime's efforts to revive business confidence. In a forecast released in April, the Asian Development Bank said Myanmar's GDP would shrink by 0.3% this year after contracting by almost 10% in 2021.

"Collectively, Myanmar lost more than about 2,000 MW of capacity as a direct result of the coup," de Langre said. "The generation capacity today should have been at least 2,000 MW higher than where it is."

Hong Kong-listed VPower in March announced that it expects 2021 consolidated profits to have fallen to between 7% and 15% compared to the $65.8 million that it made in 2020, partly blaming the numbers on two power plants in Myanmar whose operations have been halted. VPower won four out of five LNG and gas plant tenders in 2019.

Power outages during dry seasons in Myanmar, from October to May, will be "consistently very bad," de Langre predicted, although the coming rainy season will reduce shortages for a period. "So Myanmar is waiting for the rain."

The power crisis entails more than a technical shortage; it has also thrown the military-controlled electricity authorities into a financial crisis. Amid a nationwide civil disobedience campaign against military rule, many people are refusing to pay their electricity bills. MOEE receipts plunged by over 90% in the six months after the military takeover compared to the February-July period in 2020, according to a report by Independent Economists for Myanmar.

Since then the MOEE has partly succeeded in establishing some control over bills, "but nowhere near the levels needed for a sustainable government," the former adviser said. "We're still seeing about 30% to 40% of electricity bills go unpaid. That's a real problem. Can the ministry commit to honoring its contractual obligations over several years? If you're an investor with a power purchase agreement with the ministry, how sure are you that you'll get paid when they're hemorrhaging money and implementing chaotic currency policies?"

To tackle the crisis, the ruling State Administration Council last year launched a solar farm tender and talked about promoting hydropower investments. It also split the MOEE into the Ministry of Electric Power and the Ministry of Energy, dismissed Aung Than Oo, the military-appointed minister, and hired former military officer Thaung Han to head both ministries. The move undid the merger of two entities conducted by the NLD administration in 2016.

"Former minister Aung Than Oo was an MOEE insider. His replacement by a military man likely signals a dissatisfaction at the top level with the state of the energy sector, especially the outages and bill collection," de Langre said, adding that he expected a heavier-handed approach. "The restructuring is purely cosmetic. It's like rearranging the chairs on the deck of the sinking Irrawaddy flotilla."

Thaung Han, newly appointed minister for the Ministry of Electric Power and the Ministry of Energy, speaks in a televised program. (Screenshot from MRTV)

Thaung Han, who has a military and engineering background, worked at the Department of Hydropower Implementation and chaired the Mandalay Electricity Supply Corporation. On May 13, Thaung Han met Chinese ambassador to Myanmar Chen Hai to discuss cross-border power lines, hydropower projects and cooperation in other energy industries.

Now there are fears the military might perceive controversial hydropower projects as the answer.

In late April, before he was replaced, Aung Than Oo announced the regime had greenlighted a 210 MW Namtu hydropower project in Hsipaw, an area in northern Shan State ridden with conflicts between ethnic armed groups. The deal was signed by the Department of Electric Power and Planning under the MOEE with Mandalay-based company Natural Current Energy Hydropower Co.

In mid-March, state-run PowerChina said it expected construction of a 135 MW gas-fired power station in Kyaukphyu to be completed in November. The project is being developed in the same area in Rakhine state where Beijing is planning a deep-sea port.

Analysts point out this represents a sliver of Myanmar's energy demands.

The regime also canceled solar farm tenders awarded to Chinese companies by the previous government in 2020, and the ministry is said to be ready to blacklist the companies for "breaching tender regulations" due to repeated delays in the projects, the Irrawaddy news outlet reported. On the potential blacklist are Sungrow Power Supply of China and a consortium of Burmese conglomerate Shwe Taung and Chinese GCL System Integration Technology.

The alleged blacklisting is still a rumor and not confirmed, said a Western diplomat in Yangon with knowledge of the matter. "It would be shortsighted for the SAC to ban the very limited range of possible players. [Is the] SAC trying to show it has clout?"

According to another source, the blacklisting was only requested by one MOEE department and the ministry has yet to decide on the matter.

The threats are coming from a regime that apparently believes "these developers would be building the solar plants at the same PPA [power purchase agreement] price that was agreed before the coup in a completely different environment," de Langre said. "The fact that some in the ministry are talking about blacklisting is telling. It's related to the appointment of a new minister, and sends a signal to investors. I'm afraid these officials don't particularly understand that this is not how to get foreign companies on board."

He said the 2021 tender also posed a risk to developers who in 2020 signed contracts to build solar power capacity. Under the original 2020 solar tender, the PPA price was 3.8 cents per kilowatt-hour and the highest rate was 5 cents per kwh. For the 2021 military tender, those PPAs are apparently significantly higher, about 40% to 50% more expensive, he added.

As for the regime potentially reviving controversial hydroelectric dam projects, a Chinese academic says there could be momentum in that direction.

A graffiti message can be seen on a stone at the confluence of the Mali and Nmai rivers at Myitsone. The China-backed Myitsone dam project was suspended by President Thein Sein in 2011.   © Reuters

Lin Xixing of Guangzhou's Jinan University said popular opinion in Myanmar has changed regarding the China-backed Myitsone dam project, a $3.5 billion megadam that was suspended by President Thein Sein in 2011.

Since Russia's invasion of Ukraine, "public opinion in Myanmar has undergone a major reversal," Lin wrote in a Taiwanese news outlet in April. "Especially under the torment of water shortage, electricity shortage, and unspeakable misery, the public opinion circles re-proposed the Myitsone project."

Lin argued that "If Myitsone was built, the dam would be 457 feet high and generate 6,000 MW of electricity."

Activist group Justice for Myanmar branded Lin's analysis "deceptive and unethical."

"The people of Myanmar are united in their opposition to the junta and have clearly demonstrated sustained opposition to the Myitsone Dam, which risks the Irrawaddy's whole ecosystem," spokesperson Yadanar Maung told Nikkei. "The Myitsone dam has further repeatedly been a source of violent conflict and must be permanently canceled."

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