Burmese President Thein Sein and his administration began and ended last week with bold moves that have significant implications for the domestic and international business communities.

At the start of the week, the administration once again flexed its newly developed regional muscles by announcing that it was cancelling the 4,000 megawatt coal-fired power plant that Italian-Thai Development Pcl (ITD), Thailand’s biggest construction company, had planned to build in Burma’s Dawei Special Economic Zone (SEZ).

Then in two major political developments that have far-reaching implications for Burma’s business environment, on Thursday the administration entered into a ceasefire agreement with the Karen National Union and on Friday released many of the country’s most prominent political prisoners.

These last two developments are some of the strongest indications to date that the Thein Sein administration is serious about taking concrete and meaningful steps towards establishing two things that companies making business investments care most about: stability and the rule of law. The Dawei power plant cancellation, however, sends mixed signals in both regards.

Gov’t Push for Ceasefire Agreements Increases Potential for Stable Environment

Karen insurgents have been involved in conflicts with the Burmese government for over 60 years and the KNU had never before signed a ceasefire deal. The agreement on Thursday follows a similar ceasefire agreement with the Shan State Army-South and a clear push by the government to establish an atmosphere in which the much more difficult political talks to negotiate long-term accords can occur.

The one exception to this is in Kachin State, where despite Thein Sein’s order that government military offensives be halted, the army continues to engage in serious conflict with the Kachin Independence Army (KIA). Two possible explanations for this are that the Burmese military is protecting powerful people with vested interests in Kachin resources, and that it is using the offensive to put negotiating pressure both on the KIA and the other ethnic armed groups. Both explanations unfortunately signal that some elements of the Burmese armed forces are still mired in the old military mindset and have the power to assert their influence when they choose to do so.

However, the fact that Thein Sein and his colleagues are making a public effort to put a stop to armed conflicts in most ethnic regions means increased current stability and greater potential for long-term stability in Burma, and that is good news for those doing business in the country.

Release of Political Prisoners a Major Step Towards the Rules of Law

Just as good news is Thein Sein’s decision to finally release a significant percentage of the political prisoners. The fact that they were being held behind bars on trumped-up charges was the primary evidence that Burma was not yet committed to making progress towards the rule of law, which the legitimate business community prizes greatly when making investment decisions.

Burma is still far away from establishing anything close to a publicly promulgated, equally enforced and independently adjudicated legal system. But hopefully, the release of a significant number of political prisoners signals that other reforms meant to improve the arbitrary and corrupt nature of Burma’s current system will soon follow. What happens during the next session of Burma’s Parliament, which begins on Jan. 26, will be a good indication of whether further progress can be expected.

Ceasefire and Prisoner Release Increase Likelihood of Sanctions Reduction

In addition to providing increased stability and a movement in the direction of the rule of law, the combination of the ceasefire with the KNU and the release of political prisoners provides the strongest indication yet that a significant reduction, or even elimination, of economic sanctions may be just around the corner.

The three most widely cited conditions for the reduction of US and EU sanctions—reiterated by British Foreign Secretary William Hague during his trip to Burma last week—are the release of political prisoners, the end of armed conflict and human rights abuses in ethnic areas, and free and fair elections. So after the positive developments this week, all investor eyes will be on the conflict in Kachin State and the upcoming by-elections, because if the fighting stops and the elections go well, the sanctions barrier may be eased or lifted soon and the Burmese “gold rush” will be on.

Even now, Burma is beginning to reap some rewards for its reforms. The US announced on Saturday that it will normalize relations with Burma and appoint an ambassador to the country for the first time since 1990, a sure signal to US and other Western business interests that if they are thinking about doing business in Burma, it is now worth the time and expense of at least laying the groundwork for such a move.

Shortly afterwards, Norway announced that it will no longer urge Norwegian companies to refrain from trade and investment in Myanmar, although it will continue to align itself with the EU sanctions regime, which is set to be reviewed in April.

Then on Sunday, French Foreign Minister Alain Juppe, the highest level French diplomat to ever visit Burma, met with Aung San Suu Kyi and said that France and the EU would respond “positively and in concrete terms” to the reform moves made by the Burmese government. Juppe will meet with Thein Sein in Naypyidaw on Monday.

Earlier in the week, the Australian government announced that it was already easing sanctions, and Cambodia, the current chair of the Association of Southeast Nations, called for the lifting of sanctions.

Cancellation of Dawei Power Plant Sends Mixed Messages

ITD has been granted a concession by the Burmese government to develop a deep-sea port, a shipbuilding yard, an oil refinery, a petrochemical plant, a steel-making plant, a fertilizer production plant and the power plant in the Dawei SEZ.

The cancellation of the power plant, while laudable in many respects, sends a very mixed signal to the business community. The decision followed Thein Sein’s announcement in August that his government was suspending work on the Chinese funded and operated Myitsone Dam hydro-power project on the Irrawaddy River in Kachin State.

With respect to both Dawei and Myitsone, the Burmese government blind-sided an important neighbor and trading partner with the news and said that public opposition and environmental concerns were the primary reasons for cancellation of the project. Also in both cases, the vast majority of the power to be generated would have been used outside of Burma.

While environmentalists, political activists and most likely a majority of the Burmese public are rightfully hailing Thein Sein for these gutsy moves, the international business community will likely view them as a yellow sign of caution.

Investors do not like to see valid contracts overturned by governments. As a result of Dawei and Myitsone, some potential providers of foreign direct investment will be factoring an increased risk of government intervention into their analysis. They will also be looking to see what, if any, compensation the Burmese government offers the slighted companies and keeping an eye on contract renegotiations—already hinted at in both instances—that may take place in the future.

There is a good case to be made that the two cancelled energy facilities posed an egregious threat to both Burma’s environment and the health and well-being of its people, so they are therefore anomalies that should not be lumped in with other contracts entered into in Burma. However, the reality is that much of the potential investment in Burma will be in sectors and geographical regions that draw environmental and social concerns, and investors will be wary if they believe that the government is willing to step in after-the-fact and overturn or alter these deals.

From a corporate social responsibility standpoint, Thein Sein has sent a good message that egregious business practices are at risk, and that may incent companies entering Burma to raise their standards. But from a rule of law perspective, he has sent the message that valid contracts may not be honored, and that may both hinder or delay investment and drive down prices investors are willing to pay.

On the flip-side, the cancellation of the Dawei power plant and Myitsone dam project may also signal that certain Burmese assets that were previously locked up by regional partners in unconscionably sweetheart deals—that benefitted only a few members of the previous military regime but were detrimental to Burma as a whole—may be subject to review by reformers in the government. However, Thein Sein will probably not push his luck by taking too much money out of the hands that once fed him.

Ten Oil and Gas Blocks Awarded, Nine More Up For Auction

The cancellation of the Dawei power plant occurred shortly after a trip to Burma by former Thai Prime Minister Thaksin Shinawatra, and a visit soon thereafter by a delegation led by his sister, current Prime Minister Yingluck Shinawatra, that included Thai Energy Minister Pichai Naripthaphan and executives of the Thai state-owned oil and gas company, PTT Public Co Ltd (PTT). Following these visits, it was announced that PTT would be awarded development rights to two onshore oil and gas blocks in Burma.

All in all, Burma this week awarded the rights to ten onshore oil and gas blocks to eight companies from countries including Thailand, Malaysia, Indonesia, Hong Kong, India, Russia and Switzerland.

Interestingly, Chinese companies showed little interest in the on-shore offer. China is already extracting oil and gas in 23 of Burma’s 47 inland blocks, and so it may feel that it has secured rights to what it has determined are the most potentially lucrative blocks and is happy to leave the remains to other regional players while Western sanctions remain in place. It’s also possible, however, that the dragon is sending a message to Burma that it remains displeased with the Myitsone slap in the face, and won’t now be used as a stalking horse to drive up the price on energy blocks for other competing bidders.

In addition, sources told Reuters that Burma will now reportedly offer nine offshore blocks, five of which are deepwater.

“The Ministry of Energy has asked for proposals. Some oil and gas companies have come for the data presentations. There has been a lot more interest in the deepwater blocks coming from the Japanese,” said one Reuters source.

Foreign Business Delegations Parade into Burma

Following on the heels of the Thai delegation, Japanese Trade Minister Yukio Edano led a group of leading business figures to Burma this week, including the president of Japan’s top refiner JX Nippon Oil and Energy.

Smaller Japanese companies, especially in textiles and fisheries, want to do business in Burma, and bigger firms are taking an interest, said Yoshihiro Araki, senior researcher at the Japan External Trade Organization, according to Reuters.

In addition, the Japan Bank of International Cooperation has been in talks with ITD on providing the funding for port and road development in Dawei, and Japan has been actively pushing for and providing funding for the development of a “Southern Corridor” transport route from Burma to Vietnamese ports.

“Other countries are rushing in,” said Araki. “Japanese businesses are thinking they cannot lose this race.”

While still blocked from investing in the country due to Western sanctions, even business representatives from the US are assembling at the starting line, if not edging over it, for the race into Burma. This week it was revealed that a group of key American executives would travel to the Southeast Asian nation in early February. It was initially announced that none other than Bill Gates would be among them, but his spokesperson later denied that this was the case.