The former head of Myanmar’s state- owned oil company defended it against criticism from Nobel laureate Aung San Suu Kyi as U.S. explorers scout the country’s oil and gas blocks for the first time since 1997.
Myanma Oil and Gas Enterprise, known as MOGE, is run by technocrats who reported to government ministers and had no authority to approve contracts, according to San Lwin, a former managing director of the organization. Suu Kyi in June urged governments to restrict partnerships with MOGE until it abides by international rules for transparency.
“It’s just a puzzle,” San Lwin, who is now a consultant to Cnooc Myanmar Ltd., said in an interview in Yangon last week, referring to Suu Kyi’s criticisms. “MOGE alone doesn’t have the authority to sign a production-sharing contract. How can you say MOGE is not transparent?”
Myanmar is preparing to offer more oil areas to become self-reliant in energy and help fuel an economy that the Asian Development Bank said may grow as much as 8 percent a year for more than a decade. President Barack Obama in July authorized U.S. companies to invest in Myanmar for the first time in 15 years and said energy firms must report ventures with MOGE within 60 days.
ConocoPhillips, Royal Dutch Shell Plc and Chevron Corp. (CVX) were among Western oil companies that sponsored an energy forum in Yangon this month. Myanmar’s government plans to join the Extractive Industries Transparency Initiative to increase investor confidence, Deputy Energy Minister Htin Aung told a Euromoney conference in Naypyidaw on Sept. 12.
Bidding for onshore and offshore blocks will take place “at the appropriate time,” Htin Aung said, without elaborating. “As Myanmar’s upstream petroleum sector has now started entering the international community, it will need time to make many considerations before launching any more international bidding rounds.”
Sixty two of the country’s 101 exploration blocks remain open for investment, including 34 onshore, eight in shallow water and 20 in deep water, Htin Aung said. Myanmar awarded nine of 18 areas offered last year to companies such as Thailand’s PTT Exploration & Production Pcl (PTTEP) and Petroliam Nasional Bhd., Malaysia’s state oil company, known as Petronas.
Chevron declined to comment on whether it would bid for blocks in Myanmar, saying in a statement that it “actively pursues new business opportunities globally that meet our criteria for investment” and avoids discussing specifics. Shell, which doesn’t operate in Myanmar, issued a similar statement in response to e-mailed questions, saying “commercial sensitivities” prevent it from commenting. India’s Oil & Natural Gas Corp. (ONGC) will probably bid on the blocks, according to D.K. Sarraf, managing director of overseas unit ONGC Videsh Ltd.
Myanmar plans to use new discoveries for its own growth, after President Thein Sein took power a year ago following about five decades of military rule. Frequent power outages sparked protests earlier this year as only about a quarter of the population has access to electricity, according to an ADB report released last month.
The country meets about a third of its crude oil demand and half of its natural gas needs, while exporting about 80 percent of gas produced to neighboring Thailand, according to Htin Aung. China National Petroleum Corp., China’s biggest energy producer, is building oil and gas pipelines across Myanmar to access Middle Eastern crude and pump offshore gas to landlocked areas in southern China.
Suu Kyi, who spent 15 years under house arrest, joined Parliament for the first time in April after her party won 43 of 44 seats it contested in by-elections. She is now traveling in the U.S. on a 17-day tour in which she will be awarded the Congressional Gold Medal, America’s highest civilian honor.
MOGE “lacks both transparency and accountability at present,” Suu Kyi told a press conference in Geneva in June. Governments should not allow partnerships with MOGE unless it adheres to standards such as the International Monetary Fund’s code of good practices on fiscal transparency, she said.
Myanmar founded MOGE in 1963 after nationalizing the assets of Burmah Oil Company, a U.K.-based firm that was eventually acquired by BP Plc. Foreign companies must partner with MOGE to operate in the country.
“Although some people have raised questions about transparency, they actually have a fairly functioning regulatory system, which can be understood,” Christopher Drew, country manager for Twinza Oil Ltd., told an investment forum last week in Naypyidaw, referring to the Energy Ministry. “It sometimes takes a little while but there is nothing really hidden.”
During San Lwin’s five-year tenure as head of MOGE, he negotiated contracts for blocks with PTTEP and Daewoo International Corp. (047050) as part of a committee that included Energy Ministry officials. Once terms were agreed, they were presented for approval to the energy minister, attorney-general, Myanmar Investment Commission and finally the Cabinet, San Lwin said.
“In the past, there may be some partiality,” he said. “But right now it is not a major problem for interested parties to get the same treatment. Anyone who can provide better terms and conditions, they can get the block.”
Prior to this year, Chevron was one of the few U.S. companies operating in Myanmar through its 2005 purchase of Unocal Corp., which invested in a gas field and pipeline before a 1997 ban on new investment. Total SA operates the project, in which MOGE has a 15 percent stake.
Simon Billenness, a Chevron shareholder who has pressed the company to disclose all payments to the Myanmar government, remains unconvinced that the country has changed for good. While applauding moves to free some political prisoners, Billenness said companies should urge authorities to release all detainees, strike peace agreements in areas with ethnic minorities and ensure free and fair national elections in 2015.
“On the transparency issue, I’ll believe it when I see it,” Billenness, who is also part of the Business and Human Rights Group at Amnesty International USA, said by phone. “When the Burmese government has successfully joined EITI, then I will know they are serious about revenue transparency.”
Fourteen countries now comply with the Extractive Industries Transparency Initiative, which began in 2002 as part of efforts to ensure natural resource revenues benefit the poor. The government must sign up for the initiative.
The oil and gas sector has accounted for 77 percent of the $3.8 billion in foreign investment Myanmar attracted from 2005 to 2010, according to the ADB. Natural gas exports increased to about $3 billion last year and are set to rise in 2013 as more gas fields and pipelines become operational, it said.
While revenue from gas exports over the past five years helped boost international reserves to $9.9 billion, little showed up in government accounts, according to the IMF. A managed float of the exchange rate in April will boost gas sales in the current fiscal budget to 17 percent of total revenue, up from less than 1 percent a year ago.
Money earned from gas sales went straight to government coffers and not the pockets of MOGE officials, San Lwin said.
“I use a 20-year-old car and drive myself around,” he said. “These days if someone is doing something wrong, it will show up on the Internet.”
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