China Remains a Key Player in Myanmar's Energy Sector

China Remains a Key Player in Myanmar's Energy Sector

Like every developing country working towards poverty alleviation and
industrial development, Myanmar pays more and more attention to
infrastructure building to meet its rising energy requirements. Despite some
setbacks in the past, the new administration under the leadership of the
National League for Democracy (NLD) is likely to open the door to
investments from China. Chinese companies invest in oil and natural gas
explorations, pipeline and oil refinery construction.

Moreover, many other Chinese companies are involved in hydropower projects,
wind power and natural gas-based power generation projects. Under the
China-ASEAN Technological Transfer Centre, China looks forward to strengthen
cooperation in agriculture, new energy, reusable energy, internet,
environmental protection and biochemical industry.

In this endeavour, China-Myanmar technological transfer centre can provide
ample opportunities to cooperate in energy. This is where Naypyitaw wants
China to play a constructive role in the new development path, and they can
explore new areas in power generation as envisaged in Myanmar's Energy
Master Plan.

Cooperation in Power Sector

There is a new wave of cooperation in power sector after the suspension of
the Myitsone hydro project. Kachin State of Myanmar bordering with Yunnan
Province of China has huge potential of hydroelectricity. However,
hydropower projects have both social and environmental impacts which stand
in the way to smooth implementation of the projects.

Being a key player in hydropower projects, Chinese companies attracted
unwanted attentions from the public and organised groups spearheading for
environmental protection. In order to cope with the tensions, the two sides
held consultations over the changing political dynamics and scope for
cooperation in various sectors. In the subsequent exchanges, the issues of
corporate social responsibilities and creation of job opportunities for
Myanmar nationals were highlighted.

In an open letter sent to Chinese President Hu Jintao dated 16 March 2011,
the Kachin Independence Organisation (KIO) warned of a civil war in case the
project was not scrapped.[1] The armed conflicts in Northern Myanmar
compelled China to pursue an active foreign policy to 'preserve regional
stability and promote China's own interests' through peaceful
resolutions.[2]

The Kachin Independence Army (KIA), the armed wing of the KIO, disturbed
hydropower projects and transport infrastructures.[3] It marked the
beginning of the Kachin conflict affecting border areas stability and
economic exchanges. In spite of the roadblocks, in August 2011, the two
countries agreed to strengthen cooperation in electric power sector.[4]

Instead, suspension of Myitsone Dam was announced in September 2011.
Following this, the two sides held consultations meetings to control the
damage and build mutual trust. [5] However, the suspension was not revoked
during the tenure of President Thein Sein. Thus, Myitsone Dam project worth
US$3.6 billion became a central issue in China-Myanmar cooperation.

The new administration under President Htin Kyaw opened a new chapter by
announcing to establish a special review committee to look into the project.
On 30 March 2016, the new President was sworn in setting a new political
stage after decades of military junta. Even after the suspension of Myitsone
Dam, the previous government under President Thein Sein made concerted
efforts to improve power situation.

During Chinese Premier Li Keqiang's visit in November 2014, the two sides
signed an agreement to establish a China-Myanmar Electric Power Cooperation
Commission. The joint statement issued on Li's visit agreed to strengthen
power infrastructure construction and to set up an inter-governmental power
cooperation mechanism and support the cooperation in power projects
according to the principles of fairness, transparency, safety and
environmental protection.[6]

Besides, a preferential buyer credit loan agreement on Upper Yeywa
Hydropower station and a Memorandum of Agreement for 500 MW combined cycle
power plant in Yangon (Thakayta) were signed.[7] Again, the two sides
re-affirmed commitment to deepen cooperation in the field of agriculture,
infrastructure, power, finance, technology, law and security, education and
culture.[8]

The first meeting of the China-Myanmar Electric Power Cooperation Commission
was held in January 2015. The two sides reached agreement on transparency in
conducting both Environmental Impact Assessment and Social Impact Assessment
and public consultation over the projects.[9] In May, Union Electric Power
Minister of Myanmar Khin Maung Soe held a meeting with officials of the
Chinese National Energy Administration (NEA) on progress of electric power
projects being implemented.[10]

The two sides agreed to take utmost care of the environmental and social
impacts while undertaking such projects.[11] A total of 18 hydropower
projects were agreed to be implemented as priority at the second commission
meeting. Following these meetings, a MoU on cooperation in power sector was
signed during the China (Sichuan)-Myanmar Business Matching Conference in
June.[12]

When the former Myanmar President Thein Sein visited China to commemorate
the 70th Anniversary of Victory of the World Anti-Fascist War in September
2015, a new foundation was laid to cooperate in power sector. The Joint
Press Release carried bilateral agreement on the inter-governmental power
cooperation mechanism to enhance power production capacity.[13] Earlier in
April, the two sides exchanged on cooperation in key areas like agriculture,
electricity and finance.[14]

In January 2016, a Chinese delegation of the State Power Investment
Corporation (SPIC) met with Myanmar President Thein Sein to cooperate in
electric power sector and conduct feasibility study to prevent flooding from
the Ayeyawady River.[15] Myanmar inaugurated the Myogyi Multi-purpose Dam
which was constructed with support from the Yunnan Machinery Equipment
Import & Export Company Ltd.[16] On 2 February, the third China-Myanmar
Electric Power Cooperation Commission meeting was held in Naypyitaw. During
the meeting, China handed over the draft agreements on cooperation for
electric power sector and implementation of hydropower projects to
Myanmar.[17]

The China Three Gorges Corporation signed a Memorandum of Agreement for the
Chuangtha Wind Farm Project in Ayeyawady Region. In August 2012, a MoU for
development of wind power projects in Chin State, Rakhine State, Ayeyawady
Region and Yangon Region was signed.[18] Another major project in power
generation is the 106 MW Thakayta gas-fired combined cycle plant in
Yangon.[19] The commencement ceremony of the project was held on 12 May
2016. The project will get gas supply from the Zawtika offshore gas field of
Myanmar.

According to the Directorate of Investment and Company Administration (DICA)
of Myanmar, till the end of February 2016, China was the number one investor
with over US$15 billion worth of investments in 126 projects in Myanmar.[20]
During the visit of Chinese Foreign Minister Wang Yi in April this year,
China expressed willingness to promote cooperation in industrial development
and infrastructure building.[21] Stretching it further, China states that a
'stable and economically prosperous' Myanmar contributes to China's
'economic and security interests'.[22]

In June 2016, Chief Minister of Kachin State of Myanmar urged both China and
Myanmar to resolve the long-suspended Myitsone Dam issue while meeting with
a Chinese delegation led by Chinese Ambassador Hong Liang in Kachin.[23]
Protests were held against the visit of Chinese Ambassador and the team of
China Power Investment Corporation (CPI) to Kachin State for meeting with
local authorities. The meeting was significant in view of the second visit
of Aung San Suu Kyi to China in August 2016. During Chinese President Xi
Jinping's meeting with her, China expressed willingness to enhance
cooperation between the energy departments and find solution to the Myitsone
project.[24] Both sides agreed to solve the suspended dam issue.[25]

In fact, the former President of Myanmar Thein Sein put the project under
suspension on the ground of public protests over environmental and social
impacts. Interestingly, the joint press release between China and Myanmar of
August 2016 underlined the increasing importance of cooperation in power
sector. It states: 'The two sides will continue to make good use of existing
inter-governmental cooperation mechanisms including the economic and trade
joint committee, agricultural cooperation committee and electricity
cooperation committee, and enhance mutually beneficial cooperation in the
fields of economics and trade, agriculture, water, electricity, productivity
and finance.'[26] Nevertheless, protests against the project continue
unabated.[27]

In the fiscal year 2016-2017, China is the top foreign investor in power
sector of Myanmar. China invested in five projects worth US$1.3 billion,
according to a report released by the DICA of Myanmar. Under bilateral As
cooperation in power sector increases, China plans to invest in 39
hydroelectric projects, five wind power projects and five solar energy
projects in Myanmar under Build-Operate-Transfer and Joint Venture system.
The power consumption is increasing by 15 percent (300 MW) annually. While
the per capita power consumption of Thailand was 2,500 kilowatts (KW),
Myanmar's consumption was just about 222 KW.[28]

This figures call for drastic steps to improve infrastructures for power
generation. Currently, out of the total installed capacity, hydropower
generates 69 percent, natural gas accounts for 29 percent and coal-fired
power plants account for just 2 percent.[29] Of the total 10.88 million
households in Myanmar, more than 7.34 million households have no access to
electricity. Thus, only 33 percent of the Myanmar population has access to
electricity. Meanwhile, Myanmar increased the installed capacity of power
generation from 3,413 MW in the 2010-2011 fiscal year to 5,029 MW by
December 2015.[30]

Oil Pipeline and Refinery Projects

In addition to power sector, China is a key player in oil and gas projects
in Myanmar. The construction of crude oil pipeline passing through Myanmar
and the oil unloading terminal on Ma-de Island in Kyaukpyu was a significant
achievement in this direction. For a developing country like Myanmar, the
pipeline project offered not only transit fee but also a share of crude oil
for domestic consumption, job opportunities and technological knowledge.

This enabled the formulation of plans to construct new oil refinery with
larger capacity to meet the increasing demand. No doubt, China has much to
gain by lessening dependence on the Malacca Strait. The 2,400 kilometre long
oil pipeline will feed the proposed 260,000 barrels per day Anning refinery
plant in Yunnan province of China bordering Myanmar.

The construction of the pipeline project began in 2011 and it was completed
in early 2015 at the cost of US$2.4532 billion.[31] The concerned
authorities implementing the pipeline construction took up social welfare
measures for the people affected by the project.[32] In May 2014, Myanmar
Union Minister for Energy Zeyar Aung visited oil field in Daqing, South East
Asian pipeline control station, Liquefied Natural Gas (LNG) gas station and
China National Petroleum Corporation (CNPC) pipeline control centre in
Beijing.

He also visited the West to East pipeline control station in Shanghai and
the Yunnan oil refinery project in Kunming to strengthen technical
cooperation with China in energy sector.[33] During Chinese Premier Li
Keqiang's visit, a MoU on China-Myanmar cooperation in oil and gas sector
was signed between the CNPC and the Ministry of Energy of Myanmar.[34] The
enthusiasm on the part of Myanmar and China's interests in the oil and gas
sector points to a shared future through cooperation between energy
departments.

Building of the US$3 billion refinery in Dawei by Guangdong Zhenrong Energy
Co. and other host partners will have major implications. Unlike the oil
pipeline project, the refinery in Dawei will enhance cooperation in energy
sector among Myanmar, China and other South East Asian countries. With a
total capacity of 100,000 bpd, the oil terminal, storage and distribution
facilities would enhance Myanmar's standing in energy market in South East
Asia. In addition to other players, China could be a prospective buyer of
the petrochemical products.

Because of Myanmar's geographical location, China and Myanmar can join hands
with other actors to make Myanmar a petrochemical industry hub. Crude oil
(also natural gas) from Africa and Middle East can be easily transported to
Myanmar and an oil and gas refinery industrial complex can do wonders in
economic development. Nevertheless, China needs approval of Myanmar to
engage in such major projects. Despite having the capital and technological
expertise to build such infrastructures, Myanmar's readiness for greater
energy cooperation is wanting. This is further plagued by lack of capital
and technological expertise on the part of Myanmar. Earlier, the refinery in
Dawei also met opposition from some quarters.

The Dawei refinery is a key project from China's energy security point of
view. China imports refined petroleum products on the Lancang-Mekong River
from Thailand.[35] With the development of the Dawei Special Economic Zone
(SEZ), the volume of trade along this river will also increase. To meet the
requirements, China joined hands with the Mekong River countries to dredge
the river to allow 500-tonne ships to navigate the river year round.[36]
Without further delay, China hosted the First Lancang-Mekong Cooperation
Leaders' Meeting in Sanya, Hainan Island.

The refinery will also strengthen energy cooperation at regional and
sub-regional levels. The Greater Mekong Subregion (GMS) has economic
cooperation programme in areas such as infrastructural linkages, energy,
telecommunications, transport and trade facilitation, development of
regional economic corridors, agriculture, tourism, human resource
development and environmental conservation.[37] Based on this premise, the
Economic Corridors of the GMS will link Dawei refinery to Mekong shipping
route to facilitate import of petroleum products to China and neighbouring
ASEAN countries.

At present, Myanmar has three ageing refineries. The refineries at Chauk
with production capacity of 6000 barrels-per-day (bpd), Thanbayagan with
capacity of 25,000 bpd and Thanlyin with capacity of 20,000 bpd are unable
to meet the demands. Plan for new refinery with larger capacity was floated.
A refinery in Minhla Township in Magway was proposed to process crude oil
coming from the China-Myanmar oil pipeline.[38]

Such a plant to refine some share of Myanmar's crude oil imported through
the Kyaukpyu oil terminal would enhance energy security of Myanmar. The
combined refinery capacity of just 51,000 bpd is behind the total demand and
the energy consumption is increasing rapidly.[39]

A report states that the three refineries are in poor state and produce
barely one third of the official figure of 55,000 barrels per day combined
capacity.[40] Myanmar with a population of about 55 million population uses
only 35,000 to 40,000 barrels of oil products a day while Thailand with 65
million consumes around one million barrels a day.[41]

In 2013, Myanmar produced around 20,000 barrels of oil per day from its
onshore and offshore oil reserves.[42] The Myanmar Oil and Gas Enterprise
and the US Energy Information Administration suggests that the country has a
proven reserve of 540 billion cubic metres of gas and around 50 million
barrels of oil.[43]

The proposal for a new oil refinery involving Guangdong Zhenrong Energy Co.
received the green signal from China's National Development and Reform
Commission (NDRC) in November 2014.[44] Under the new Myanmar laws on
foreign investment, Ministry of Energy of Myanmar should participate in
every new petrochemical project undertaken in the country. With 70 percent
share in the investment, Guangdong Zhenrong Energy Co. will work with other
joint venture partners of Myanmar. [45] The MoU on the project was signed in
2010 and an environmental assessment was conducted in 2012.[46] Successful
completion of the project will open new opportunities for both China and
Myanmar.

Myanmar has become a level playing field for various players including
China. China invested in some major projects in energy sector. Further
cooperation and collaboration in this field would create more wealth and
services for the two peoples. Restoration of mutual trust and strengthening
of strategic ties could open new windows of opportunities. In fact, there is
vitality in the bilateral relationship to engage in major cooperation
projects. Oil and natural gas are strategic resources to fuel economic
development.

Moreover, Myanmar has huge potential for hydropower generation. Cooperation
in these areas will bring major achievements in other sectors of the economy
too. To tell the truth, it is a priority area in bilateral cooperation at
present. The power plants, oil pipeline and refinery projects would help
awaken Myanmar from its long slumber. A well-played game is expected when
the players have discipline and rules are fair to all. These are the basic
requirements to engage in a mutually beneficial cooperation.

Reference

1. 'KIO warns China: Myitsone Dam could spark civil war', Mizzima, 20
May 2011, at
http://www.mizzima.com/news/inside-burma/5295-kio-warns-china-myitsone-dam-c
ould-spark-civil-war.html.
2. Shen, Dingli (2011), 'Some reflections on China's diplomacy in
2010', 5 January 2011, at
http://www.china.org.cn/opinion/2011-01/05/content_21676287.htm.
3. KIA based in Kachin State is committing deterrence to development
projects of Kachin State, 17 June 2011, at
http://www.mofa.gov.mm/news/June2011/17-6-2011.html.
4. Myanmar, China to cooperate in electric power sector, New Light of
Myanmar, 21 August 2011.
5. China, Myanmar agree to cooperate on suspended joint hydropower
project, Xinhua, 10 October 2011, at
http://news.xinhuanet.com/english2010/china/2011-10/10/c_131183217.htm;
Wang, Yan and Zheng, Yangpeng (2011), VP Xi: resolve differences through
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15 November 2014, Naypyitaw, Xinhua, at
http://news.xinhuanet.com/english/china/2014-11/15/c_133790813.htm.
7. President U Thein Sein, Chinese Premier Li hold talks at
Presidential Palace, Global New Light of Myanmar, 15 November 2014.
8. Myanmar President meets Chinese vice president in Nay Pyi Taw, 17
December 2014, at
http://news.xinhuanet.com/english/china/2014-12/17/c_127310251.htm.
9. China-Myanmar Electric Power Cooperation Commission Meets, 23
January 2015, Global New Light of Myanmar, Naypyitaw, Page. 3.
10. Union electric power minister meets vice administrator of NEA,
Yunnan Province governor, 27 May 2015, at
http://www.moi.gov.mm/moi:eng/?q=news/28/05/2015/id-3631.
11. Ibid.
12. Tin Mg Oo (2015), China, Myanmar sign wide ranging business deals',
Myanmar Business Today, 17 June 2015, Vol. 3, Issue 23, at
http://www.mmbiztoday.com/articles/china-myanmar-sign-wide-ranging-business-
deals.
13. Myanmar, China agree to step up cooperation in border management and
work together to maintain peace and stability in border areas, Global New
Light of Myanmar, 5 September 2015, page. 2.
14. China backs political solution to northern Myanmar issue, eyes
boosted cooperation, 22 April 2015, Jakarta, at
http://news.xinhuanet.com/english/2015-04/22/c_134175284.htm.
15. President meets officials from Chinese power generation group,
Global New Light of Myanmar (GNLM), 19 January 2016, at
http://www.globalnewlightofmyanmar.com/president-meets-officials-from-chines
e-power-generation-group/.
16. President attends opening of Myogyi Multi-purpose Dam, GNLM, 2
January 2016, page. 1.
17. Hydropower Projects: China-Myanmar Cooperation, Myanmar
International TV, 3 February 2016, at
http://www.myanmarinternational.tv/news/hydropower-projects-china-myanmar-co
operation.
18. China Three Gorges Corporation signed MoA for first wind power
project in Myanmar, GNLM, 3 March 2016, page 5.
19. China-Myanmar JV starts building power plant in Myanmar's Yangon,
GNLM, 13 May 2016, page. 3.
20. China tops list of investors in Myanmar, GNLM, 19 March 2016, page.
5.
21. China, Myanmar pledge to further develop traditional friendship,
People's Daily, 7 April 2016, at
http://www.chinadaily.com.cn/world/2016-04/07/content_24341735_3.htm.
22. China Focus: China mulls upgrade of Lancang-Mekong ship route, 26
March 2016, Kunming, at
http://news.xinhuanet.com/english/2016-03/26/c_135224454.htm.
23. Myanmar official urges to resolve China-Myanmar dam project issue,
People's Daily, Myitkyina, 3 June 2016, at
http://news.xinhuanet.com/english/2016-06/03/c_135410809.htm.
24. Xi vows to promote China-Myanmar partnership, 19 August 2016,
Beijing, Xinhua, at
http://news.xinhuanet.com/english/2016-08/19/c_135615833.htm.
25. China, Myanmar agree to solve suspended dam issue, 18 August 2016,
Xinhua, at http://news.xinhuanet.com/english/2016-08/18/c_135612261.htm.
26. Joint press release between the Republic of the Union of Myanmar and
the People's Republic of China, Global New Light of Myanmar, 21 August 2016,
page. 2.
27. Residents protest against Mytisone Dam meeting, Mizzima, 6 June
2016,
at
http://www.mizzima.com/news-domestic/residents-protest-against-myitsone-dam-
meeting; Moe Myint (2016), Dozens in Myitkyina Township Protest Myitsone Dam
Meeting, The Irrawaddy, 4 June 2016, at
http://www.irrawaddy.com/burma/dozens-myitkyina-township-protest-myitsone-da
m-meeting.html.
28. China stands as largest investor in Myanmar's power sector, Yangon,
8 September 2016, Xinhua, at
http://news.xinhuanet.com/english/2016-09/08/c_135673133.htm.
29. Kyaw, Khine (2016), Myanmar targets 17-fold rise in coal-fired power
by 2030, The Nation, 19 January 2016, at
http://www.nationmultimedia.com/business/Myanmar-targets-17-fold-rise-in-coa
l-fired-power-b-30277093.html.
30. Ibid.
31. Ma-de oil port to create job opportunities for locals and contribute
to development of education and health sectors, Global New Light of Myanmar,
Yangon, 29 January 2015.
32. CNPC, Mines Ministry takes measures for welfare of locals along
Myanmar-China oil and gas pipeline, New Light of Myanmar, 23 July 2011.
33. Union Energy Minister visits oil fields, gas pipeline control
stations in China, New Light of Myanmar, 28 May 2014.
34. President U Thein Sein, Chinese Premier Li hold talks at
Presidential Palace, Global New Light of Myanmar, 15 November 2014.
35. Commercial Transportation on the Mekong River, 2 May 2008, at
http://stimson.org/content/commercial-transportation-mekong-river.
36. China Focus: China mulls upgrade of Lancang-Mekong ship route, 26
March 2016, Kunming, at
http://news.xinhuanet.com/english/2016-03/26/c_135224454.htm.
37. Two corridors of Mekong Subregion will surely contribute to regional
development, Global New Light of Myanmar, 21 December 2014.
38. Aung Shin (2014), Progress on new refinery in Magwe region stalls,
Myanmar Times, 9 February 2014, at
http://www.mmtimes.com/index.php/business/9495-progress-on-new-oil-refinery-
in-magwe-stalls.html.
39. Myanmar constructing new oil refinery for domestic use, 19 August
2012, at
http://www.shwe.org/myanmar-constructing-new-oil-refinery-for-domestic-use/.

40. Boot, William (2014), Burma's Oil Production Tipped to Decline; Fuel
Imports to Increase, The Irrawaddy, 17 July 2014, at
http://www.irrawaddy.com/business/burmas-oil-production-tipped-decline-fuel-
imports-increase.html.
41. Yep, Eric (2014), Major Oil Traders Eye Growth in Myanmar Fuel
Demand, The Wall Street Journal, 27 May 2014, at
http://www.wsj.com/articles/SB10001424052702304811904579587513704969346.
42. Boot, William (2014), Burma's Oil Production Tipped to Decline; Fuel
Imports to Increase, The Irrawaddy, 17 July 2014, at
http://www.irrawaddy.com/business/burmas-oil-production-tipped-decline-fuel-
imports-increase.html.
43. Ibid.
44. Li, Wenfang (2015), Refinery deal in Myanmar key for Guangdong
Zhenrong Energy, China Daily, 27 January 2015, at
http://usa.chindaily.com.cn/business/2015-01/27/content_19414571.htm.
45. Ibid.
46. Ibid.

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com