On rising demand for energy and the importance of international investment
Source: Oxford Business Group
How has the pandemic impacted plans for investment in the power sector?
U ZAW NAING THEIN: The pandemic has had a substantial impact on the global energy sector, including that of Myanmar. However, since only around 55% of the population currently has access to electricity, the pandemic has not affected our business plans to expand electricity distribution dramatically.
The impact on independent power producers (IPPs) has also been minimised, and the country’s essential electricity requirements mean that the government will not modify much in its power generation plan. Power producers that align with the National Electricity Master Plan (NEMP) will still find many opportunities.
The corporate structure of our business was impacted in the short term, but we implemented contingency plans and reorganised our strategies to mitigate the challenges of the current downturn.
What are the primary opportunities available to foreign investors looking to enter the energy sector?
U ZAW NAING THEIN: At the start of 2020 there were around 10.9m households in the country, with the public grid supplying roughly 55% of all electricity. The government owns approximately 30% of generation capacity, with the remaining 70% currently controlled by IPPs. The NEMP aims to achieve 100% electrification by 2030, with the support of international entities such as the World Bank, the Asia Development Bank and the Japan International Cooperation Agency, along with financing from the government, and both foreign and domestic investors.
The objective for the coming years is to stimulate private sector activity and attract more foreign direct investment (FDI) to facilitate opportunities for collaboration, advanced technology adoption and knowledge transfer. In the power sector, more than $50bn of additional investment will be needed to meet the NEMP’s targets by 2030. Of this, $34bn is needed for power generation, $10bn for transmission and $6bn-7bn for distribution. Myanmar is one of the biggest markets in the region, and offers particularly promising investment opportunities in the power sector.
Although there are many opportunities for FDI, foreign companies entering the market must be prepared to meet government requirements and overcome challenges. These include accessing credit, which is usually sourced from international entities like the World Bank; securing land in rural areas since foreign companies may struggle to negotiate with the rural population; and managing the foreign exchange risk associated with receiving payments in kyat. To handle these complications effectively, international players need to work closely with reliable local companies and public institutions that know the market and have experience overcoming these challenges.
The Myanmar government is very welcoming and takes full responsibility for FDI. They ensure that Myanmar’s investment law, incentives and protection are improved, and provide attractive investment opportunities.
Which initiatives are catering to the increased demand for energy for off-grid?
U ZAW NAING THEIN: One of the main challenges that the NEMP faces is the supply of energy to rural areas, where the distribution line from the national grid is costly. To address this, the minister of electricity and energy decided to launch an off-grid solution. The main sources of energy that cater to the off-grid supply are diesel generators, solar energy and small hydroelectric power plants. Investors and IPPs may be reluctant to invest in off-grid projects because the return on investment is low and there is a dearth of grants from regional governments. Thus, the majority of investments come from international non-governmental organisations, foreign governments and international development agencies that provide soft loans with low interest rates.
Nonetheless, there are many opportunities for FDI. Public and commercial entities must work together to overcome challenges and encourage private investment. Alternatively, if these remote areas were connected to the national grid in the future, it would make off-grid investments obsolete. As such, the government is now working to align a remediation plan for off-grid investors.