Client briefing note | 25 November 2016
Myanmars big LNG deal is slowly taking
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shape. The World Bank organized a
workshop in Nay Pyi Taw to report on
the outcome of a pre-feasibility. Here in
our analysis.
Myanmar LNG Project Update:
Observations on the World Banks
Workshop of 10 November 2016
Workshop organized as
approximately 100 Expressions of Highlights of this note
Interest were received
Workshop organized as approximately
The World Bank organized a workshop in
100 Expressions of Interest were
Nay Pyi Taw on 10 November 2016 (the
Workshop) to report on the outcome of a received
pre-feasibility study done by MJM Energy
for the World Bank. The study focused on This is a big, big deal
options for LNG purchase by Myanmar
And a complex deal
and on the prima facie merits of three
designated possible LNG terminal sites. No long term LNG contracts to purchase
The workshop comes after the newly
formed LNG Business Tender Committee LNG?
of the Ministry of Electricity and Energy
(MOEE) requested for Expressions of They seem focused on an FSRU, for
Interest (EOI) in the bulk supply and/or now
terminal of LNG in Myanmar (the Project).
Possible sites for the FSRU
By the deadline, which passed Friday
last week on 28 October 2016, the MOEE Its all about the pipeline
received approximately one hundred
How about the schedule for the Project?
EOIs from traders, upstream companies,
shipping companies, infrastructure How about the schedule for the Project?
providers and combinations of the above.
When can we expect the Request for
Although the Workshop was definitely
about the LNG project, it was not about the Proposal?
tender process. The World Bank executives
What about the integrated power angle?
did not want to entertain any questions
about commercial or timing aspects of the Some key Myanmar issues to consider
tender, which is not surprising since the
IFC will be taking the lead on that aspect of
the project. Nevertheless, the assumptions
and opinions expressed by the study
group do indicate some direction for the
forthcoming Project, although we do
need to understand that these are just
indications.
In this memo, we provide our observations
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on the World Bank Workshop and we
look ahead to the tender for the Project
planned for next year.
This is a big, big deal
Officially, at this stage only a pre-feasibility
study has been done. So, we do not know
for sure what LNG volume we are talking
about for the Project, and the World Bank
is not yet taking any position on actual
demand. But the capacity of the FSRU
which was featured in the study is 500
MMSCFD, which is nearly 3.5 MTPA. That
is larger than we expected and larger
than any of the existing LNG receiving
terminals in Indonesia right now, to
name a place (Nusantara Regas Satu has
a 3 MTPA capacity, Lampung FSRU has
1.8 MTPA and ArunRegas has 1.5 MTPA
capacity).
One of the key uncertainties, the study
group explained, is that no one knows for
sure yet how much gas Myanmar will really
need to generate power in the future. That
is to say, it is clear that (i) the demand for
electricity far exceeds current supply, and
will grow at least 15% per year and (ii) the
production of domestic gas in Yadana and
Zawtika is already declining. But many of
the other elements we need to make an
informed decision are unknowns, and
some will stay that way for a while. For
starters, when will recent discoveries in A6
and A7 translate into more domestic gas
becoming available, perhaps eliminating
the need for imported LNG? It is hard to
predict when this will happen, and what
the volumes will be.
One factor we could actually narrow
down is how much of the electricity
supply gap needs to be taken up by
gas-fired power plants. That is a matter
of Government policy, and it depends
on how many hydros and coal will get
through. The existing energy plans
(including the ones provided by E.GEN
and METI) assume that coal and hydro will
provide the main source of generation.
It is now increasingly clear that those
plans are no longer current. Large scale
hydropower projects may present social
challenges the likes of which are new to
Myanmar. Plus, it seems coal projects are
all but dead in the water, until further
notice. So how much gas is needed to fill
the gap left by (possible delays in) hydro
and coal? To illustrate the uncertainties,
consultants at the workshop pointed out
that the competing energy plans findings
vary from 1.8 MTPA to 8.4 MTPA when it
comes to need for LNG import. As was
mentioned above, the World Bank did not
take a view on actual LNG demand.
Anyway, if this number ends up in the RFP,
this would be the largest energy project in
Myanmar, by far. At this kind of capacity,
including the storage and the needed
pipelines (more on that see below),
excluding any power infrastructure,
the World Bank consultants calculated
about up to a billion US$ in capex and
discounted expenditure, much of which is
pipeline costs.
And a complex deal
It is not only a big deal, it is also a complex
deal. Much more complex than Myanmar
is used to in the few years the country has
been opened to foreign investment in the
energy sector. This is project upon project
upon project. We have power generation
facilities, we have a pipeline (could be
more than 500 km) and we have the
terminal/FSRU (which will need marine
facilities).
All of these three projects, needed to
match seamlessly, are still in the very early
stages. As for the power generation, the
ones that need to purchase the natural
gas, we believe that more concessions
will be needed than the ones currently
granted. In other words, not all the
offtakers have been given a license yet.
And for those that do have a license, most
did not yet reach financial close. So, they
might not exist yet by the time we kick off
the tender.
This is all doable, but it is not easy.
Especially not in Myanmar (see below for
more details).
No long term LNG contracts to
purchase LNG?
The invitation to submit an EOI did not
betray whether the Project would be
primarily about LNG supply or about
infrastructure. It called for companies with
experience in both.
At the Workshop this moved quite a bit
into the infrastructure direction. It was
revealed that if it is up to the consultants,
there is no need for Myanmar to procure
LNG under long term contracts. Increasing
volumes of LNG are available on the spot
market. Myanmar could purchase LNG
on the spot market or under 1 or 2 year
contracts. In due course, Myanmar could
develop a portfolio of purchase contracts
at various tenures in stages, like Pakistan,
the experts argued.
Separately from the supply, the
Government (or the natural gas off-takers)
would conclude a tolling agreement with
the terminal for the regasification, and the
Government could build, or have built,
the necessary pipelines.
Now, there is no way of knowing whether
the actual RFP will drop medium-to-long
term LNG supply in favor of spot. With gas
taking over a large portion of the planned
electricity supply, the MOEE might choose
for energy security.
They seem focused on an FSRU, for
now
The study looked both at an onshore
terminal and at an FSRU solution. The FSRU
solution came out as better in line with
the Governments timing expectations.
The discussion of the suitability of the
possible sites from thereon focused on
the FSRU, most likely a lease. With these
kinds of volumes, that is perhaps not
surprising. The duration of the Project,
more than 5 year and less than 15 year,
is also conducive of a temporary solution
rather than a permanent one.
The preliminary site studies all focused on,
for a large part, whether it was suitable to
place an FSRU there in terms of met-ocean,
navigation and weather conditions.
During the workshop some questions
were raised by the attendants on
transmission versus pipeline, and smaller
quantities, but the experts could say little
about it as these were outside of the
scope of this particular study.
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Possible sites for the FSRU

The Government gave the consultants 3 potential areas to look at and compare. Each area
had two or more potential sites.

The Government gave the consultants 3 potential areas to look at and compare. Each area
had two or more potential sites.

1. Three sites in Rakhine

2. Two sites in Ayawaddy
3. Three sites in Mon state

After comparing metocean, navigation, weather, pipelines, local infrastructure and

environmental and social aspects, the consultants came to the preliminary finding that the
sites Rakhine and Mon State would both be suitable, and the sites in Ayawaddy somewhat
less so. However, for the site in Rakhine the pipeline would be very long, making that site
almost certainly more expensive from a capex perspective than the sites in Mon State. So,
that would leave one of the sites in Mon State as the better choice from the three for now.

However, the World Bank made it clear that alternative sites might be possible. We think it
is likely bidders can propose their own site as well.

Its all about the pipeline have to be granted.

The most important factor in the capex of the Project is the new pipeline which will be First of all, the MOEE would have to
needed. For a certain site access to the Shwe pipeline could be negotiated, but even then compensate for all but eliminating coal
a new 30 pipeline would have to be installed on existing routes to Yangon as the existing fired plants from the energy master
one is too small. The Mon State site offers the possibility of deploying a subsea cable, plans, if that is indeed what is happening.
which may be easier in terms of obtaining rights of way, and shorter, but it is also relatively Secondly, the volume of LNG to be
more expensive. imported which the MOEE and the World
Bank used in the pre-feasibility, although
just a working assumption, is aimed at
Site Length of pipelinein km
approximately 2,500MW. Assuming that
1 Rakhine Between 475 to 557 there will still be a significant portion
of domestic gas available as well in the
2 Ayawaddy 235 future, this is more than currently in the
works around Yangon.
3a Mon State (over land) 410
3b Mon State (subsea) 225 But whether an IPP would be included
in the tender itself, that is a whole other
How about the schedule for the Project? question. At this stage, it seems unlikely to
us. Based on what we know of the internal
The study group took the view that a solution could be in place within (at least) 3 years. workings of the MOEE, it would be more
One year for studies, permitting and financing and two years of engineering, procurement likely that new IPPs will be tendered by
and construction. That is if all goes well. the DEPP, or that the DEPP will simply take
up a newly negotiated proposal from an
Based on our experience, it is likely that more than one year is needed in Myanmar to IPP.
reach to financial close on a project of this nature. Lead times for land acquisition and land
permitting, port terminal permits and for obtaining the critical Government guarantee Some key Myanmar issues to consider
(which may require parliamentary approval, and a budget cycle in and of itself takes
nearly 1 year) are substantial. By comparison, the Myingyan gas-fired power project, also As I pointed out on the panel at the
with IFC support, took quite a bit more than one year to get through and that project is Workshop, there are a few key Myanmar
much smaller and less complex than what is contemplated here. legal issues that require particular
attention in connection with the Project,
When can we expect the Request for Proposal? at least the way it is (preliminarily) shaping
up.
The World Bank would not say. Based on what the MOEE tells us, mitigated with our own
experience with other MOEE tenders, our best guess is that the RFP might come out at the Government guarantees, more than
earliest in April 2017. As everything else right now, that date must be read with plenty of likely needed, are largely untested
flexibility. and may determine the schedule:
Actual Government guarantees (to
What about the integrated power angle? be distinguished from contractual
commitments) in Myanmar are
Of course, the Project is all about gas-to-power. But, in the site analysis, no mention was governed by the Public Debt
made of the need or the possibility to add an IPP near the terminal. Nevertheless, there are Management Law 2016 (PDML).
some indications that in the context of this Project, additional concessions for CCGTs will Such guarantees are largely untested

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 in practice as the budget is now on a
strictly cash basis. Under the PDML,
which confirmed a practice already
in place with the annual National
Budget Laws, the Ministry of Finance
can provide guarantees or something
resembling a guarantee for debt to
any person, association of persons or
project in accordance with such terms
and conditions as may be approved
by the Government and the [National
Assembly] (s. 30 PDML). Government
debt means all the debt obligations
arising from the borrowing or the
promise of payment by Central Bodies,
Union Ministries and organizations
in their charge, the Government or
government-guaranteed debt
more promising.
Coordination with other Ministries will be
key: Many more state departments will
be needed to get a project of this nature
through, and it can be recommended
to get them involved from the planning
stage. Of particular note is the Myanma
Port Authority and the Ship Registration
Department, both of the Ministry of
Transport and Communications, which
will regulate the jetty, the terminal, the
FSRU and the vessels supplying the LNG.
Also of note is the Ministry of Commerce
which needs to issue the LNG import
licenses. Finally we should bring in the
Customs Department and the Internal
Revenue Department, needed to
Related vDB LOI Publications
Client Alert: Clock is ticking
to submit your proposal to
the Myanmar Investment
Commission
What Changes in Practice under
the New Investment Law?
Myanmar Government Seeks
LNG Partnership: Key Things
To Know for Your Expression of
Interest
Download
Get to the point.

(s. 2 PDML). The budget cycle, with narrow down the current uncertainties Energy and Infrastructure

the financial year ending 31 March
concerning the tax imposts on the
The energy and infrastructure team in our firm has one goal:
using the unique local knowledge and relationships we have
spent years building up, to give your deal the edge. We are the
ultimate in ground connectivity.

International financial institutions are confident in our

of each year, will have an impact on Project.

advice, choosing us for several of their largest-ever financing
transactions in our markets. Governments trust us to act for them
on their privatizations and private sector partnerships.

Our ability to navigate government administrations is

the schedule of the Project. So, the

exceptional, saving precious time on approval processes and
improving the transparency of infrastructure projects.

Ministry of Finance (now the Ministry Will the Government want an equity Cambodia
Indonesia
Laos

of National Planning and Finance) can stake? As we explained in our previous

Myanmar
Vietnam

indeed provide guarantees but within note on the Project, the MOEE, Commercially creative firm with very high standards. It has advised

yet to be drafted terms and conditions particularly the energy side, has
on the tender process and financing for various infrastructure projects,
as well as the privatisation of state-owned entities.
Legal 500

which need to be approved by the
National Assembly.
Securing land rights for the site and
for the pipeline may be challenging:
Although nearly all the land in
Myanmar is state-owned, the MOEE
does not manage much of it. In most
cases, land rights for sites must be
secured from other state actors such
as states and regions (Myanmar is a
Union of 14 states and regions) or
other national ministries. This is very
a long process. Furthermore, right of
way for pipelines and transmission has
become increasingly difficult in recent
years amid social opposition (not in
my backyard) and environmental
concerns. We think that a subsea
pipeline solution is therefore all the
traditionally received an equity stake in Experience in Energy
its projects with foreign investors. The and Infrastructure
previous Union Minister even supported
https://goo.gl/BFMLEK
this practice by introducing regulations
under the Foreign Investment Law
requiring foreign investors in certain
Our offices in Myanmar
energy sectors to conclude joint ventures
with the MOEE. One of the more recent
such joint ventures is National Energy
Puma Aviation, a joint venture between
one of the SOEs of the MOEE and Puma.
The Managing Director (MD) of the
MOGE, U Myo Myint Oo, brought this
up when he joined the panel at the
Workshop, raising speculation that there
might be some expectations or plans in
this regard. The MD also touched upon YANGON
possibly seeking financing to construct Level 8, Centrepoint Towers
the pipeline as well as to fund the equity No. 65 Sule Pagoda Road & Merchant
stake into the Project company. Street, Kyauktada Township
T: +95 137 1902 / +95 137 1635
F: +95 124 1238

Contact
Edwin Vanderbruggen is the senior partner of VDB
Loi in Myanmar. He and his team assist the Myanmar
Government with transactions and privatizations in
the energy, transport and communications areas.
He has advised 4 of the supermajors on their oil and
gas interests, worked on several farm-ins in recent
years and is acting on the proposed purchase of a
producing gas and pipeline interest. NAY PYI TAW

Edwin Vanderbruggen
Partner, VDB Loi
edwin@vdb-loi.com
T: +95 137 1902
+95 137 1635
www.vdb-loi.com
Edwin is highly praised by peers and clients alike No. S-204, Tha Pyay Kone Ward
Zabu Thiri Township
as a seasoned and informed professional (Asia
T: +95 678 108 091
Law) with very high standards (Legal 500) while F: +95 678 108 092
the firm is widely considered a power house (Asia
Law).
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