Foreign companies are set to play a big role in helping develop Myanmar’s inadequate power generating capacity. Only 26% of Myanmar’s populace has access to electricity, and a lack of reliable supply is a stumbling block for business. Indeed, many international manufacturers that had been enthusiastic about entering Myanmar have already been stymied by the power problem.
The government targets increasing capacity by 16,000 megawatts (MW) by 2030, or approximately four to five times the capacity now installed. A master plan and regulations for the industry are now being developed, but are not due to be completed until June 2014.
Huge fuel supplies brighten prospects. Fortunately for power companies, Myanmar is rich in untapped fuel resources, with natural gas reserves of more than 12 trillion cubic feet, ranking at 37th in the world. The country’s potential for renewable power is estimated at more than 50,000 terawatt-hours per year, an amount that is 300 times Thailand’s 2012 production.
Although the national power plan has yet to be concluded, the media have reported indications of its general direction and outline. Based on the emerging scenario, we advise Thai investors to follow three broad strategies:
1. Invest in large base-load power plants in key cities. Big stations are feasible investments if situated in areas of high economic activity, such as near Yangon, Mandalay, and Nay Pyi Daw. These cities already have base load plants, but they are insufficient to meet demand, and power interruptions remain a significant economic problem.
Myanmar clearly needs more investment in base load power plants, which are typically fuelled by coal or natural gas or involve large hydro installations. These types of base load plants are the key to providing the uninterrupted, affordable power supplies that Myanmar so greatly needs in order to grow.
There is still room for newcomers. Various conventional power producers are planning investment in 54 projects totaling 4,500 MW, yet this still leaves plenty of opportunity for new entrants. At least 15 natural gas projects with a total capacity of 2,800 MW could be accommodated by 2030, not to mention the 60,000 MW potential for large hydropower plants that has not been captured.
The tariff rate of approximately 1-3 baht per unit might not be as attractive as Thailand’s rate of 2-5 baht per unit just now, but future increases are likely, especially if the tariff follows the trend of 6% growth per year seen between 2006 and 2012. And bear in mind that Myanmar offers a production cost advantage thanks to cheaper labour costs and locally sourced fuel.
Investors need to consider, however, the potential of resistance from local communities affected by power plant operations, especially coal-fired projects and big dams.
2. Invest in small, renewable, off-grid power plants in rural areas. Myanmar’s target for electricity access is to serve 80% of the populace by 2030 compared to 26% as of this year, and development of off-grid renewable plants in rural areas will be key to meet this ambitious goal.
Off-grid systems are electricity systems that do not connect to the main national distribution system, and these systems can take the form of sizeable stand-alone grids or isolated mini-grids. Smaller renewable power plants better suit the needs of off-grid generation in places where demand is lower, which is true of much of the country given Myanmar’s low population density of 74 people per square kilometre, a rate second-lowest among Asean countries.
Small renewable plants take less time to build. A solar installation takes just a few months to put online, whereas a large plant might require three to five years to build. The off-grid approach also looks far more feasible than extending grids, which can take decades and involve very high investment costs, estimated at above 800 billion baht to reach a level of distance coverage similar to that in Thailand. This figure doesn’t even include costs for improving system quality or developing substations.
Off-grid plants gain from much higher rates. Rates that can be charged by off-grid plants in Myanmar are among the highest in continental Southeast Asia, at three to eight times on-grid tariffs. When selecting a site, investors should consider the availability of fuel supplies as well as the local household demand potential.
SCB Economic Intelligence Center (EIC) recommends Magway and Sagaing divisions because they have good potential for solar and biomass projects. Moreover, only 15% of Magway’s households have access to electricity, and only 18% of Sagaing’s which can help the government to reach their goal faster. But investors need to carefully consider the issue of how much local customers can afford to pay, because electricity from renewables is often more expensive.
3. Invest in power plants based in Thailand to sell electricity to Myanmar’s industrial estates in border areas. These industrial estates near the Thai border are developing rapidly, and their potential power consumption could track very closely to the 14% annual growth rate in trade value along the Thai-Myanmar border. Projects in these areas benefit from being able to sell electricity to Thailand as well as Myanmar.
The feasibility issue in these areas is that a project can sell power at higher rates into Myanmar, but with less certainty regarding demand, whereas sales to electricity authorities in Thailand are more predictable, but less profitable in terms of pricing.
Companies considering projects need to bear in mind that investment conditions stipulated by the Myanmar government have been strict in the past. According to the Asian Development Bank, the government has previously required, for example, a no-cost share in joint venture projects of 25%, and 10% of power generated to be supplied at no cost in various past joint ventures. In addition, Myanmar was entitled to buy up to 50% of electricity generated, with project ownership reverting to the government after the concession period ends.
And there are also other caveats in investing in Myanmar’s power industry. New players need to keep in mind the availability of qualified technology experts, land regulations, and shifts in policy. Thai investors should reach out to secure contacts among potential local partners, while making plans to source funding in Thailand, because Myanmar’s banking industry is underdeveloped.
Investing in Myanmar is a high-risk undertaking, but we believe that now is a prime time to enter the power generating market. Investors will need to plan carefully, but grasp the opportunity now because it might not recur.
EIC, a unit of Siam Commercial Bank Public Company Limited, offers in-depth macroeconomic outlook and sectoral impact analyses. For more information, please visit www.scbeic.com or contact eic@scb.co.th