Burma eyes ‘symbolic’ energy deals with the West

Burma eyes ‘symbolic’ energy deals with the West

A number of lucrative energy contracts are likely to be handed to Western firms in April, when the Burmese government is set to open a long-awaited bidding round for some two dozen off-shore oil and gas tenders, analysts have said.

President Thein Sein has spent the past two weeks travelling from Europe to Australasia in a bid to garner Western support for further dropping of sanctions against the former pariah state. It follows a number of high-level business delegations travelling to Rangoon to discuss opportunities in Southeast Asia’s newest market, including the extractive industries.

Paul Donowitz from EarthRights International told DVB there is likely to be “significant” Western interest in the April bids, including from American companies, which are still subject to a number of government-imposed sanctions.

He described the next round of blocks as “low risk” with large natural gas deposits and easy access, which is likely to appeal to Western bidders more than the “less lucrative” onshore oil blocks launched in January.

Shell, Chevron, ConocoPhillips, Exxon Mobil and Statoil have all expressed interest in investing in the resource-rich country, as diplomatic relations between Burma and the West continue to warm.

“Burma is very anxious to re-establish relations with the West, there’s often been great concern within the country that they are falling excessively under the sway of China,” Sean Turnell, an economist and Burma expert from Macquarie University, Australia, told DVB. “They would like to award contracts to the West.”

According to a recent Reuters report, the Burmese government has even pledged to open the April bids to 100 percent foreign ownership in a bid to attract new investors. But companies would still be required to enter into production sharing contracts with the military-owned Myanmar Oil and Gas Enterprise (MOGE).

Turnell added that despite vocal commitments to improving transparency in the notoriously secretive state, Thein Sein has taken few “concrete” steps to monitor the activities of the military, which still holds substantial financial stakes in Burma’s oil and gas industries.

“We still have a situation where 20 percent of the budget goes off to the military – and that’s how much is admitted,” Turnell said, insisting that greater transparency will not necessarily influence how the government chooses to spend its oil funds.

For the first time this year, the Burmese defence ministry published their capital expenditure, which reached US$1.15 billion or nearly 21 percent of the national budget. But the military is constitutionally entitled to a large degree of autonomy, and it is unclear how much of its income is generated from Burma’s gas exports, which is estimated to reach US$3.50 billion.

“One of the main concerns with MOGE and the large extractive projects is that many of them are in the ethnic areas, and often where the Tatmadaw is providing security there are heightened human rights concerns,” warned Donowitz.

The MOGE-backed Shwe Gas pipeline for example, which is expected to be completed by May this year, will slice through Arakan, Shan and Kachin states and connect China to the Bay of Bengal. It is already estimated to have caused mass displacement of locals, and the Burmese army has been accused of solidifying its positions in the conflict-torn Kachin state to secure passage for the pipeline.

Thein Sein has publicly pledged to join the Norway-based Extractive Industries Transparency Initiative (EITI), which would require Burma to disclose all the money received from foreign companies and work with civil society groups to improve accountability of revenue management.

But concerns remain over the inclusion of ethnic minority groups, especially in resource-rich areas, as well as the lack of capacity and experience among civil society groups involved in the process.  Donowitz warned that the initiative could be used as a “fig-leaf” to harness additional foreign investment into Burma’s volatile ethnic regions.

“There have been some comments made by people in the Myanmar (Burmese) government that they really want to pass EITI to assuage concerns by western investors,” said Donowitz. “I think it’s really in line with some of policy changes we’ve seen inside. There is no need to implement EITI overnight; it has to be done right.”

Analysts have described President Thein Sein’s recent and planned visits to other resource-rich countries, including Norway and Australia, as “highly symbolic” and likely to boost further economic cooperation between the countries.

“It is striking that Norwegian corporations are among the international business actors that are eagerly trying to get into business in Burma,” Professor Kristian Stokke from the University of Oslo told DVB.  “Likewise, Norway would like to offer lessons from good governance of oil funds (through the programme “oil for development”), which may also support a role for the Norwegian oil company Statoil.”

The Norwegian government has historically led a socially conscious state-run pension fund, which is funded by investments in the petroleum industry, and known to “black-list” companies that breach their ethical guidelines. But it has also been embroiled in a number of scandals, including funding controversial technology companies in Burma.

“Norway somewhat surprisingly has been very aggressive in signaling to other countries that things are different [in Burma],” agreed Turnell. “But I would hope that they would maintain the very critical investment strategy that they employ elsewhere.”

The United States is the only Western country due to release a set of ethical investment guidelines for companies hoping to operate in Burma, which would require the disclosure of payments exceeding US$500,000 and any partnerships with MOGE.

But human rights activists are concerned that companies may still be free to exploit certain loopholes, including the right to file “private” reports that could bury critical information such as human rights abuses, environmental destruction and reports of corruption.

“Companies are often aware of what’s happening around their project areas and if they don’t have to report abuses associated with their projects it’s a lot harder to hold them accountable,” said Donowitz.

He added that the draft guidelines are largely “policy” focused and fail to outline penalties for companies that breach them. The final rules are expected to be released before bidding begins on the April blocks.

Burma currently ranks at 172 out of 176 on Transparency International’s Corruption Perception Index.

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