Jun 8, 2013

The Rush to Tap Myanmar's Energy Promise

Myanmar, also known as Burma, has largely been shunned by the West for most of five decades of military rule that ended last year. Now open for business and shedding sanctions, the cash economy badly needs a working banking system. The population of more than 60 million wants mobile phones, newer cars, and Coca-Colas. Myanmar just hosted a three-day World Economic Forum on East Asia, with executives from multinationals such as General Electric (GE) and Unilever (UN) in attendance. But no one sector is as critical to Myanmar’s growth prospects as energy.

The country has 7.8 trillion cubic feet of proven natural gas reserves, worth about $75 billion at current U.K. benchmark prices. Neighbors India and China covet the stuff. In a recent report, the McKinsey Global Institute estimated that energy and industries such as agriculture need a combined $320 billion through 2030 for Myanmar’s economy to pull off 8 percent annual growth.

In April, the government commenced an auction for 30 blocks of offshore gas and oil. Exxon Mobil (XOM), France’s Total, and Eni (ENI) are jockeying for positions, and nearly 60 global energy companies want to work with state-owned Myanmar Oil & Gas Enterprise in the exploitation of onshore and offshore fuel. Its gas reserves represent 1.9 percent of known deposits in the Asia-Pacific region, according to the Energy Information Administration—which faults sanctions, poor foreign investment, and regulatory inconsistency for significantly stifling Myanmar’s energy output. The nation is ranked 172 of 176 nations in Transparency International’s 2012 corruption index.

“If you can get a first-mover advantage, you could be well set for years to come,” Melinda Tun, a senior associate at law firm Baker & McKenzie, told Bloomberg News. Myanmar “sits between the two most populous economies in the world.”

Though agriculture still dominates the economy, the contribution of energy and mining to gross domestic product are projected to expand to $21.7 billion by 2030, from $8 billion in 2010, according to the McKinsey report. Burma first exported oil in the mid-19th century. It now has 16 energy multinationals working on 17 onshore exploration blocks and 15 exploring or producing in 20 offshore blocks.

Myanmar’s whip-lash conversion from pariah economy to foreign direct investment bonanza is one to keep an eye on. If international companies can successfully do business in the opaque and corrupt system, the West will increasingly regard it as a legitimate frontier market alongside the likes of Vietnam and the Philippines. That then opens the door to broader bond and equity issuance and, someday, individual investors being able to participate in Myanmar’s big comeback.

Source: Bloomberg Businessweek