“Myanmar is an attractive investment destination. There is a high chance in Myanmar if the transmission-grid network is improved,” said Sopacha Dhumrongpiyawut, chief executive officer.
“Still, we need a good business model, something that matches the [Myanmar] government’s capacity and its desire to balance energy imports and exports as well as FDI [foreign direct investment] inflows.”
The company first entered the market after the Asian financial crisis in 1997, as demand in Thailand for electrical equipment and maintenance dried up. Its Myanmar-national staff were dispatched to Yangon to explore opportunities, and a representative office was set up thereafter.
Through the years, the company experienced a number of challenges. Demand for its services was limited only to hydropower projects selling electricity to Thailand. Competition was fierce with Chinese companies’ entry.
The best year was in 2007, when its annual revenue was about US$40 million (Bt1.4 billion).
The office no longer belongs to Gunkul, as it dissociated itself from operations in a sanctioned nation before listing on the Stock Exchange of Thailand.
However, years of presence in a country yield trust. As the company diversified into electricity generating, it was one of the pioneering foreign investors in Myanmar. Through a 51-per-cent-owned joint venture, Gunkul now operates a 50-megawatt gas-fired power plant in Yangon. In its third year of operation, it is operating at half capacity.
Contracts from Myanmar are still flowing in. The latest one was signed recently for engineering services and the procurement of high-voltage electrical equipment for the Electric Power Ministry’s Myanmar Electric Power Enterprise. The total value |of the project, slated to be completed in seven to 10 months, is $11.36 million.
In 2011, the company also signed a memorandum of understanding with the Ministry of Electric Power for a feasibility study to generate 2,930MW from wind power in Mon State, Kayin State, Thaninthayi Region, Shan State and Kayah State. This is along with another MoU with China Three Gorges Co for wind farms with 1,102MW in Chin State, Rakhine State, Ayeyawaddy Region and Yangon Region.
“Myanmar’s vast land looked perfect for wind farms. We thus submitted the proposal to the ministry,” Sopacha said. “We have sufficient data to materialise the investment plans, enough to know the investment cost.”
Data collection has been going on for two years. Initial results are satisfactory particularly in Mon State, she added.
Obstacles remain, though. Myanmar’s hilly terrain could pose difficulties in the transportation of equipment, which could push up the investment cost, while the government needs a huge investment to link the wind turbines with the national power grid.
In Thaninthayi Region, power demand remains low and the extension of the national grid to the area may be a waste. Sopacha said projects in the region would be possible if some of the electricity generated was sold to Thailand.
Aside from the grid, the regulatory framework is another challenge. Myanmar has not completed the regulations on power purchase agreements, which could pose difficulties for the projects’ financial viability.
Gunkul also witnessed bureaucratic difficulties when bringing in testing equipment. While the Electric Power Ministry said such equipment should not be subject to import tariffs, related departments were reluctant to follow the instruction, as it was not specified in any rules and regulations. Tired of waiting, Gunkul ended up paying tariffs.
Another challenge foreign investors should look into is the arbitration process. While the authorities want to apply Myanmar laws, Thai lawyers are unsure which laws are applicable. In the end, Singaporean laws are applied, as both the Myanmar and Thai sides are used to them.
Power users in Myanmar now enjoy heavily subsidised power tariffs. The Union Parliament in 2014 approved the government’s proposal to raise electricity charges.
A sliding scale is applied, moving in line with the amount of consumed units. From the flat rate of 35 kyat (Bt1) per unit for household use and 75 kyat for industrial use, the household rates now range from 35-50 kyat, while the industrial rates rise to as much as 200 kyat for companies that consume more than 300,000 units per month.
A KPMG report showed that despite the increase in Myanmar’s power tariffs, they remained the lowest in Asean at 5.5 US cents per unit in 2014, against more than 9 cents in Vietnam and Thailand and above 12 cents in Malaysia, Indonesia and Singapore.
“Assuming all investment challenges, the investment could mean a power tariff of Bt4-Bt5 per unit. Will Myanmar accept this?” Sopacha asked.
Published : January 03, 2017
By : ACHARA DEBOONME THE NATION