Burma Business Wrap (January 16, 2012)
covering burma and southeast asia
Thursday, January 23, 2020

Burma Business Wrap (January 16, 2012)

By STEPHEN BLOOM Monday, January 16, 2012

(Page 2 of 3)

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.

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