Myanmar gets record investment after years of isolation

New Delhi: Myanmar, shunned since the 1990s for tolerating corruption and human trafficking, is set for record foreign investment in 2012 led by oil companies after the southeast Asian nation took its first steps toward democracy.

The country plans its biggest auction of exploration blocks for oil and gas by year-end. Oil & Natural Gas Corp. of India probably will bid, an ONGC executive said in an interview. This month France’s Total SA, one of the few foreign corporations now operating under the dictatorship, said it bought 40 percent of an offshore permit, while Coca-Cola Co. made its first shipment in more than 60 years to Yangon, the biggest city.

“Myanmar is very under-explored,” said Managing Director D.K. Sarraf of ONGC Videsh Ltd., the Indian oil company’s overseas unit. “We think there are large reserves of both oil and gas that are yet to be found,” Sarraf said by phone from New Delhi. “We expect intense competition for assets there.”

President Barack Obama in July authorised US businesses to invest in Myanmar after President Thein Sein started a democratic process that saw opposition leader Aung San Suu Kyi elected to parliament following years of house arrest and prompted visits by UK Prime Minister David Cameron and India’s Manmohan Singh.

The deals carry extra risk for investors in a nation sandwiched between China and India that’s seeking to emerge from 50 years of economic and political isolation. Ranked No. 180 of 183 nations in Transparency International’s 2011 corruption index, Sein’s government will be challenged to find a balance between attracting capital and limiting a flood of money from mostly benefiting an elite.

Myanmar plans to implement the Extractive Industries Transparency Initiative, which calls for governments to disclose all payments from oil, gas and mining companies, Industry Minister Soe Thane said June 8.

“Pressing the button on transparency will help attract major western companies to a certain degree to invest in Myanmar. It shows Myanmar’s authorities willingness to fight wide-spread corruption and provide much-needed regulatory clarity for foreign investors,” said Siddik Bakir, a London- based energy analyst for the Middle East and South Asia at IHS Energy. “Western oil companies interested in Myanmar’s hydrocarbons industry need safety because they know the risks involved.”

Myanmar, called Asia’s “next economic frontier” by the IMF, is trying to fund the government better by luring companies from BP Plc to Royal Dutch Shell Plc. OAO Gazprom, the world’s biggest gas producer, is in discussions with the Myanmar government to participate in energy projects in the country, according to the Moscow-based company’s website, without giving details.

Hundreds of foreign investors met in Myanmar’s capital last week as they scout opportunities in the country even as Coca- Cola Co. and MasterCard Inc. increase their presence.

The US banned the import of rubies from Myanmar in 2008 to protest human rights violations. The ban still exists. The southeast Asian nation is potentially the world’s greatest source of high-quality rubies and jadeite jade.

“Foreign investment is crucial for Myanmar’s economic growth,” Ba Hla Aya, Charge d’Affaires of the Myanmar embassy in New Delhi, said at a conference in India’s capital city on September 13. “But the economy faces challenges in terms of shortage of human resources, lack of efficient services and non-availability of adequate financing facilitates.”

Suu Kyi, who was under house arrest for 15 of the last 20 years before she was elected to parliament in April, said during a visit to Europe in June that “transparency is the key” to attracting investments in the oil and gas sector. She cautioned companies from entering in to joint ventures with Myanmar Oil & Gas Enterprise, the national oil monopoly, which she said lacked transparency.

Myanmar was listed last year among nations that do not comply with minimum standards in combating human trafficking in an annual US State Department report along with 22 other countries including North Korea, Iran and Yemen. Tension among its more than 100 ethnic groups “remains a potentially destabilising factor,” the Asian Development Bank said in an August 20 report.

Myanmar is estimated to hold between 11 trillion and 23 trillion cubic feet of natural gas and currently produces around 19,600 barrels per day of oil and 1.475 billion cubic feet (41.77 million cubic metres) per day of gas, IHS Energy’s Bakir said. Output may rise by 300 million cubic feet a day next year when PTT Exploration starts the offshore Zawtika project. Projects operated by South Korea’s Daewoo International Corp. in the Rakhine Basin may add 500 million cubic feet a day at a peak rate, he said.

President Sein’s attempt to open the economy to foreign investments is not the first time Myanmar’s leadership has taken steps toward restoring a democracy only to backtrack. The junta released Suu Kyi from house arrest in May 2002, prompting the UN to call it a “major development” toward national reconciliation. By June 2003, Suu Kyi was back in detention.

In September, Sein halted work on the $3.6 billion Myitsone hydropower dam across the Irrawaddy being built with China Power Investment Corp., saying the project was against the will of the people.

“The Myanmar government is genuinely keen to carry out the reform and opening-up process the right way,” Gilholm of Control Risks said. “They want top energy companies to come in with their technology and expertise, not only to explore and exploit resources but also to pass on best practice know-how.”