Gunkul keen for more wind operations in Myanmar

Gunkul keen for more wind operations in Myanmar

GUNKUL ENGINEERING is ready to materialise wind-farm projects in Myanmar
immediately after the investment plans are approved by the authorities, the
company said.

"Myanmar is an attractive investment destination. There is a high chance in
Myanmar if the transmission-grid network is improved," said Sopacha
Dhumrongpiyawut, chief executive officer.

"Still, we need a good business model, something that matches the [Myanmar]
government's capacity and its desire to balance energy imports and exports
as well as FDI [foreign direct investment] inflows."

The company first entered the market after the Asian financial crisis in
1997, as demand in Thailand for electrical equipment and maintenance dried
up. Its Myanmar-national staff were dispatched to Yangon to explore
opportunities, and a representative office was set up thereafter.

Through the years, the company experienced a number of challenges. Demand
for its services was limited only to hydropower projects selling electricity
to Thailand. Competition was fierce with Chinese companies' entry.

The best year was in 2007, when its annual revenue was about US$40 million
(Bt1.4 billion).

The office no longer belongs to Gunkul, as it dissociated itself from
operations in a sanctioned nation before listing on the Stock Exchange of
Thailand.

However, years of presence in a country yield trust. As the company
diversified into electricity generating, it was one of the pioneering
foreign investors in Myanmar. Through a 51-per-cent-owned joint venture,
Gunkul now operates a 50-megawatt gas-fired power plant in Yangon. In its
third year of operation, it is operating at half capacity.

Contracts from Myanmar are still flowing in. The latest one was signed
recently for engineering services and the procurement of high-voltage
electrical equipment for the Electric Power Ministry's Myanmar Electric
Power Enterprise. The total value |of the project, slated to be completed in
seven to 10 months, is $11.36 million.

In 2011, the company also signed a memorandum of understanding with the
Ministry of Electric Power for a feasibility study to generate 2,930MW from
wind power in Mon State, Kayin State, Thaninthayi Region, Shan State and
Kayah State. This is along with another MoU with China Three Gorges Co for
wind farms with 1,102MW in Chin State, Rakhine State, Ayeyawaddy Region and
Yangon Region.

"Myanmar's vast land looked perfect for wind farms. We thus submitted the
proposal to the ministry," Sopacha said. "We have sufficient data to
materialise the investment plans, enough to know the investment cost."

Data collection has been going on for two years. Initial results are
satisfactory particularly in Mon State, she added.

Obstacles remain, though. Myanmar's hilly terrain could pose difficulties in
the transportation of equipment, which could push up the investment cost,
while the government needs a huge investment to link the wind turbines with
the national power grid.

In Thaninthayi Region, power demand remains low and the extension of the
national grid to the area may be a waste. Sopacha said projects in the
region would be possible if some of the electricity generated was sold to
Thailand.

Aside from the grid, the regulatory framework is another challenge. Myanmar
has not completed the regulations on power purchase agreements, which could
pose difficulties for the projects' financial viability.

Gunkul also witnessed bureaucratic difficulties when bringing in testing
equipment. While the Electric Power Ministry said such equipment should not
be subject to import tariffs, related departments were reluctant to follow
the instruction, as it was not specified in any rules and regulations. Tired
of waiting, Gunkul ended up paying tariffs.

Another challenge foreign investors should look into is the arbitration
process. While the authorities want to apply Myanmar laws, Thai lawyers are
unsure which laws are applicable. In the end, Singaporean laws are applied,
as both the Myanmar and Thai sides are used to them.

Power users in Myanmar now enjoy heavily subsidised power tariffs. The Union
Parliament in 2014 approved the government's proposal to raise electricity
charges.

A sliding scale is applied, moving in line with the amount of consumed
units. From the flat rate of 35 kyat (Bt1) per unit for household use and 75
kyat for industrial use, the household rates now range from 35-50 kyat,
while the industrial rates rise to as much as 200 kyat for companies that
consume more than 300,000 units per month.

A KPMG report showed that despite the increase in Myanmar's power tariffs,
they remained the lowest in Asean at 5.5 US cents per unit in 2014, against
more than 9 cents in Vietnam and Thailand and above 12 cents in Malaysia,
Indonesia and Singapore.

"Assuming all investment challenges, the investment could mean a power
tariff of Bt4-Bt5 per unit. Will Myanmar accept this?" Sopacha asked.

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com