Myanmar: Power debate heats up as govt caught short for hot season

Myanmar: Power debate heats up as govt caught short for hot season

MARCH 1 is often considered the unofficial start of summer. It was somehow
appropriate then that an issue which increases in relevance and intensity in
line with the temperature - electricity supply - was soon spreading like
wildfire on social media.

Electricity prices to triple from April 1, the headlines screamed the next
day. Particularly for Yangon residents, who consume half of the country's
power, it came as a rude shock. There were many critical comments from those
worried about how they would pay their bills.

The source was Yangon Region Hluttaw lawmaker U Kyaw Zeya (NLD, Dagon-2),
who told reporters that Yangon Region Chief Minister U Phyo Min Thein had
revealed the price increase during a meeting between the Yangon Region
government and local assembly lawmakers.

On March 3, Yangon Region Minister for Electricity, Industry, Transport and
Communications Daw Nilar Kyaw fronted a stakeholder forum on electricity and
energy at the Union of Myanmar Federation of Chambers of Commerce and
Industry.

Organised by the UMFCCI and the regional government, it drew a large
audience of foreign and local businesspeople, journalists and other industry
stakeholders.

Opening speeches from dignitaries at such events are normally formulaic,
with a short address extolling the country's economic potential. But in this
case, Nilar Kyaw spoke for 30 minutes. She insisted that the chief minister
had not told lawmakers that prices would triple. "I don't know how this news
has come out," she said.

Before her speech had concluded, the news that prices were not going to
increase had already gone viral.

Kyaw Zeya soon responded on his Facebook page. "I can say that he [the chief
minister] said that. He asked us to submit a proposal to increase the
electricity price at the regional parliament," he wrote.

He said he was angry that the chief minister had asked lawmakers to submit
the proposal, adding that it could affect the legislature's check and
balance role. "If I were the speaker of the parliament, I would totally
refuse [to accept what Phyo Min Thein requested]."

Budget black hole

While Nilar Kyaw denied the reports of a tripling of electricity prices, she
did not deny that the government wanted to increase the tariff. During the
stakeholder forum, both she and Dr Tun Naing, the Union Deputy Minister for
Electricity and Energy, said prices had to rise to cover production costs.

"If electricity prices are not increased, the government will have to spend
K900 billion on [subsidising] electricity for [the 2017-18] fiscal year,"
Nilar Kyaw said. "This is the time to transparently let the public know the
real situation. We have to do what we should do."

The argument for an increase in prices is compelling. Because just 35
percent of households are connected to the national grid, only about a third
of the country benefits from this K900 billion subsidy. But the effect is
even more insidious, because it means the government has less money to
invest in infrastructure, like grid expansion and improving generation
capacity.

The obvious solution is to remove subsidies, but public opposition makes it
politically very risky.

When the U Thein Sein government announced it would increase electricity
prices in November 2013, it backed down in the face of opposition from the
public and some lawmakers. A modest price hike was introduced the following
April, with residential users paying the previous K35 tariff per unit (1
kilowatt hour) for the first 100 units and K40 per unit for the next 100
units. Any additional units used each month are billed at K50.

Industrial users pay K75 per unit up to 500 units, K100 from 501 to 10,000
units, K125 from 10,001 to 50,000 units, and K150 from 50,001 to 300,000
units. Above 300,000 units, the unit price will drop to K100.

Even with these increases, the government still loses an average of K23 per
unit that it sells, Tun Naing said. While the average unit sale price is
K69, it costs an average of K92 to produce and distribute a kilowatt hour of
electricity.

According to Yangon Electricity Supply Corporation, 35 percent of
electricity users in Yangon are in the K35 per unit bracket, while another
30 percent are paying the K50 rate. Just 0.07 percent of users are paying
K150 a unit.

And the losses are increasing as more privately operated power plants enter
the industry. Where once the government had a monopoly on power generation,
it now buys 49 percent of its power from private power plants at commercial
rates and resells it to the public at a steep loss.

Tun Naing said that when the government buys the electricity from private
companies, the government has to pay an average of K68 per unit to operators
of hydro plants and K158 per unit to those operating gas-fired plants.

He said that the only way to cover costs would be to increase prices from
K35 to K110 per unit - the tripling of the tariff that Phyo Min Thein is
said to have proposed to lawmakers.

The pricing issue is holding back badly needed increases to power generation
capacity. The government is reluctant to agree to new deals with private
producers because it will blow out its budget further.

U Zeya Thura Mon of Zeya and Associates, one of Myanmar's local power
producers, said private operators could build power plants and produce the
electricity needed to meet demand if the government agreed to buy at
commercially viable rates.

For businesses, which are already paying more than residential users,
increased prices are a more acceptable proposition.

U Aye Thaung, chair of the management committee of Shwe Lin Pan Industrial
Zone, said industrial zone representatives had told Phyo Min Thein at a
recent stakeholder meeting that they would accept a higher tariff if it
meant a more stable power supply, because the increased cost would be offset
by savings from not using diesel generators during power cuts.

Power supply crunch looming

The second piece of bad news for electricity users is that electricity
shortages are likely during the coming hot season, when production from the
country's hydropower dams drops sharply.

Both Nilar Kyaw and Tun Naing confirmed at the stakeholder forum that Yangon
residents should expect blackouts as usual this summer.

It wasn't meant to be this way. Last year, the government appeared to have
plans in place to meet hot season demand. But its inability to finalise
power purchasing agreements with private producers means new generating
capacity will almost certainly not be ready in time.

In July 2016, the Electric Power Generation Enterprise issued an emergency
power tender, seeking to buy 300 megawatts for five years. The government
wasn't fussy about how the power was generated, just that it was as cheap as
possible and would be in place by the hot season of 2017.

In October, EPGE announced that a consortium comprising local firms National
Infrastructure Holdings, and MCM Pacific and US companies APR Energy and Ace
Resources Group had won the tender and would build a heavy fuel oil power
plant in Yangon's Ahlone Township. For the first year, while the plant was
being built, diesel generators would provide the 300 megawatts of power.

But underscoring the huge task Myanmar faces in meeting just its immediate
energy needs, the government also agreed to buy power from the runner-up
bidder, Karpowership of Turkey. The company planned to send a ship laden
with diesel generators to Myanmar, where it would pump another 300 megawatts
into the grid to meet hot season demand.

Under the letters of agreement that were signed with the companies in
October, the PPAs - which dictate the price at which the government will buy
the power - were to be signed in January.

However, as of last week, they still hadn't been signed, government
officials confirmed to Frontier. Daw Nwe Nwe Win, director general of the
Ministry of Planning and Finance's Budget Department, told Irrawaddy that
the Ministry of Electricity and Energy had not requested a budget for the
two power suppliers in either the 2016-17 or the 2017-18 fiscal years.

U Aung Tun Myint, the general manager of Perpetual Power Solution, a
subsidiary of MCM, said that under the original timeline, the company would
be required to begin producing power within 90 days of signing the PPA.
During hot season it needs to run the plant at 90 percent of capacity and 50
percent of capacity during rainy season.

Without the PPA, the project can't move forward, though. Because the PPA
dictates the price the government will buy the power, it would be risky for
the company to invest in the necessary equipment until the agreement has
been signed.

Aung Tun Myint said it would take up to three months to buy and install the
equipment needed for the plant.

That makes it highly unlikely that the project could come online before the
rainy season.

"For our side, we want to sign PPA as soon as possible," he said. "We have
already prepared the land for the power plant and built the roads. But we
need to import some heavy machinery from abroad for the plant and we are
hesitant to do that until we sign the PPA because it would be quite risky.

"I can't say the exact date for when we will start electricity production
because we don't know when we'll sign the PPA."

Yangon Region Minister for Planning and Finance U Myint Thaung confirmed to
Frontier that no price had been set for the purchase of the power from the
plant, which is to be located in Seikgyikanaungto Township.

But he suggested that the project could still be up and running by May.
"They can build the power plant even though the PPA hasn't been signed yet,"
he insisted. "If we didn't want them to produce electricity, why we would we
give them the land for the site?"

He said the PPA was the responsibility of the Union government so he
couldn't say when it would be signed.

U Khin Maung Win, the managing director of Electricity Power Generation
Enterprise, confirmed that the government had not signed PPAs with either
the National Infrastructure Holdings consortium or Karpowership.

"We've submitted the draft [PPA] to the higher level but we haven't got
permission [to sign it] from the respective department," he said, refusing
to say which department he was referring to.

He added: "I can't say when the PPA will be signed. We are still discussing
it."

Asked whether the government had a backup plan to supply electricity to the
country during the hot season, he said EPGE would "distribute as much as we
possibly can" to the whole country.

U Maung Maung Latt, chairman of Yangon Electricity Supply Corporation, said
the government would only begin buying electricity from the two companies in
2018.

"It won't be ready for this summer. We will use gas turbines instead of the
companies' power plants. I don't mean we will build new gas turbines - we
have turbines that are not running at existing power plants so we will give
more gas to these plants to run the turbines.

"I will hold a press conference soon to explain YESC's plan to the media and
public."

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Link to Original Article:
http://frontiermyanmar.net/en/power-debate-heats-up-as-govt-caught-short-for
-hot-season

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com