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HIGHLIGHTS


Powering the future: Myanmar’s transition to a new energy architecture

Myanmar is rich in natural resources, including metal ores to oil and natural gas. But in some areas, oil is still being extracted in buckets.

Overview

Clearly, Myanmar is at a critical point in its economic development. With the 2015 presidential elections ahead, and a concrete commitment to social reform and economic transformation in place, the country has the potential to become one of Southeast Asia’s breakthrough success stories.

The government hopes eventually to achieve an annual gross domestic product (GDP) growth rate of 7.7 percent. If it succeeds, GDP per capita could reach $2,000 to $3,000 by 2030, which would place Myanmar solidly in the ranks of middle-income countries and put its 60 million inhabitants on the path to future prosperity.

Development of the energy infrastructure will be key to Myanmar’s future growth. Natural gas is already the country’s principal source of income; exploitation of its vast supplies of oil is awaiting completion of this infrastructure. To help the country capitalize on these resources in a way that will support domestic energy demands and wider economic development, the World Economic Forum and Accenture recently collaborated with the Asian Development Bank to produce a wide-ranging report, ”New Energy Architecture: Myanmar.” Based on in-depth consultation with the public and private sectors and civil society, the report outlines national strategies and frameworks that could help the country achieve and balance its goals of economic growth, sustainability, and energy access and security.

Background

Historically a primary driver of the domestic economy, Myanmar’s energy sector has also assumed critical strategic importance for the surrounding region. Gas pipelines now link the country to both China and Thailand, with China planning to extend its $2.5 billion project to enable crude oil supply.

However, despite its critical role in the social and economic transformation planned to precede the upcoming presidential elections, Myanmar’s domestic energy infrastructure is stalled at a basic stage of development.

In some areas, oil is still being extracted from the ground in buckets, and its three outdated refineries have utilization rates as low as 41 percent.

Meanwhile, insufficient maintenance and an antiquated pipeline network mean gas supplies cannot keep up with demand.

The power sector also needs a major upgrade. The country continues to rely on biomass sources, mainly fuel wood from natural forests, for three-quarters of its primary energy supply. For the quarter of the population with access to power, inadequate distribution and transmission mean that blackouts are commonplace.

Major obstacles remain to completion of an affordable, secure and sustainable energy architecture for Myanmar. But these obstacles also create opportunities for embracing new technologies and leading-practice approaches. A high priority from now on will be to move away from previous export-led energy policies to focus on local oil and gas exploration, production and supply, with downstream facilities, currently underdeveloped, targeted for major overhaul and investment.

International investors are willing to make upstream investments, but first they need a dependable price point. And they will only invest in downstream assets when a viable infrastructure is in place. Underpinning the drive toward increased foreign investment will be a commitment to greater transparency, with the government clearly demonstrating how oil and gas revenues are being used.

Next, energy supply and rural electrification. Solutions to this challenge include constructing new sources of generation, transmission and distribution. Gas turbines can be used to provide centralized power to large cities, with fuel sourced from local production. For rural areas, hybrid, off-grid and renewable systems will help to transform communities and drive economic growth.

Third, a robust institutional environment will play a vital role, providing investors with the certainty they need to commit to Myanmar’s energy sector. This will likely require a number of important reforms. The local monetary system must be modernized, for example. And investment laws need further attention. While recent steps in this direction have gone a long way toward reassuring the international investment community, stringent local content obligations for the oil and gas sector are viewed as a brake on cost-effective growth and an obstacle to delivery efficiency. In short, the government will need to tread carefully as it seeks to strike a healthy balance between the right investment climate and sustainable, long-term development.