Friday 27 July 2012

Australian mining companies are exploring options in the 'new' Burma

Australian mining companies are exploring options in the 'new' Burma

John North, CEO of Canadian firm Northquest in Burma
LAND OF OPPORTUNITY: John Bovard and Stephen Everett, two Aussies hoping to strike it rich in Burma (Myanmar). Picture: Victoria Bruce
IT'S Queenslander Stephen Everett's first time in Burma and he and his mate John Bovard are hoping to strike gold in the resource-rich country.
Mr Everett, chairman of exploration company Global Resources Corp, based in South Brisbane, and Mr Bovard, principal of Sterling Mining Group, are in Rangoon, now officially called Yangon, to assess opportunities for Australian investors, including some unnamed Brisbane clients.
Mr Everett said smaller Australian exploration and mining firms were well placed to enter Burma, now officially called Myanmar, one of South-East Asia's final frontier markets.
It recently opened to foreign investment after more than half a century of military rule.
"Australian entrepreneurial junior companies are often the first movers going into remote areas," Mr Everett said, pointing to examples in South America, Africa and parts of Asia.
Australia's strong reputation in environmental and social responsibility would work in favour of new investors, he said.
At the first Myanmar Mining Summit, in Yangon this week, Australia's junior mining exploration companies are dominating the list of foreign firms scoping out opportunities in Burma's underdeveloped minerals sector.
Mining experts say the lack of multinational mining firms active in Burma makes it an ideal playground for small-scale miners.
The absence of global players such as Rio Tinto had a few tongues wagging, noted Nicholas Powrie, general manager (legal regulatory) of West Australian company Mineral Commodities.
"I think it is surprising that Rio Tinto isn't here, for the simple reason they have gone through a cycle of property divestments over the past six years and they have recently been wandering around Papua New Guinea, as has BHP, looking for new investments," he said.
Mr Powrie said Rio would most likely allow the smaller exploration firms to do the groundwork before making its move on Burma.
"The risk capital required to come into a jurisdiction such as this one comes from the small to medium players, the self-funded equity parties who are prepared to risk $50 million to $100 million to explore and develop," he said.
"As a general rule we see companies such as BHP and Rio Tinto as acquirers of these sorts of projects rather than explorers of projects - that's been the trend over the past 15 years."
One Canadian competitor may have jumped the gun on its Commonwealth cousins and has already applied for a licence to explore for gold deposits in remote central Burma.
Jon North, president and chief executive of Canadian firm Northquest and a geologist by trade, said he was "very optimistic" that his company would win an exploration permit from the Burmese Government.

John North, CEO of Canadian firm Northquest in Burma
Jon North, chief executive of Canadian firm Northquest, which has already applied for an exploration licence.           Picture: Victoria Bruce

"Myanmar will have an explosion of discovery, just like Canada did," Mr North said, likening the status of Burma's mining sector to an unexplored Canada a century ago.Mr North said Burma had done some small-scale exploration in the past but previously lacked modern technology necessary to identify rich mineral deposits.
The country has great potential for gold mining, he said, and foreign investors could bring in the capital and technological expertise to exploit this resource.
But first, they had to find the deposits.
"Myanmar needs superheroes to come in here, risk their capital and get out there to help this era of explosion," Mr North told conference delegates.
Mining veteran Owen Hegarty, head of Australian-based resources company Tigers Realm Group and the former boss of Oxiana, told delegates Australia's mining industry was poised to enter Burma's minerals game.
"Australian exploration firms are ready," Mr Hegarty said before flying to Indonesia to pour the first gold at his Martabe gold-silver project in north Sumatra.
True to his words, Australians were out in force during the three-day conference, with more than 50 representatives from 30 firms among the 200-plus companies attending the event.
As the impoverished nation emerges from more than 50 years of military rule and Western countries have eased trade and investment sanctions, foreign investors have been flocking to the former capital of Rangoon to seek their fortune.
But Burma's restrictive regulatory framework, including an export ban on raw ore and certain mineral commodities such as gold and coal, an inhibitive Production Sharing Contract arrangement combined with a lack of legal and physical infrastructure, means many interested companies will be adopting a "wait-and-see" approach.
One of the major bones of contention involves the 30:70 profit-sharing ratio, stipulated under Burma's 1994 mining law, between a foreign company and the Burmese Government, which does not act as an equity partner but takes about 30 per cent of the total resource extracted on top of royalties and income tax.
"That means you risk all the money, you risk all the development, then you give the Government a share of the production free of charge, on top of royalty," Mr Everett said. "People will not invest on that basis, not large-scale, anyway."
Investors and experts pointed to many grey areas in the legal framework.
They said law and practice were two different games in Burma, with some government officials explaining everything was open to negotiation.
"Foreign investors can negotiate the production-sharing ratio with the relevant mining department," said Daw Ma Thu Za, an expert on foreign investment from the Burma Directorate of Investment and Company Administration.
"No one's going to sign that deal - it's just not profitable," said one West Australian investor who asked not to be named, adding companies would prefer to try their luck in countries with more attractive framework such as Indonesia or the Philippines.
Other sticking points included prohibitions on the export of raw ores, trading restrictions and the bureaucratic hurdle involved in negotiating the rights to an exploration permit from the Burmese Government, and the tenure of prospecting, exploration and production permits.
But while Burma's framework might not be attractive to big investors, Richard Taylor, general manager of Melbourne-based boutique firm Five Corners Consulting, said Australian firms were well placed to make the first move and test the waters in Burma's mineral sector.
"The junior exploration plays a very significant role in stimulating the interest in getting the high-risk exploration activity under way within a country and it is these people which we will see larger companies follow," Mr Taylor said. "They are going in at a point where the mining law is in its infancy and down the track if Myanmar pursues an attractive and open mining system you will see larger companies taking part in a very promising country."
Australian companies attending the 2012 Myanmar Mining Summit included Horizon Mines, Venture Minerals, Newmont, Sterling Mining Group, Eastern Iron Limited and Altura Mining.

This article was first published on The Courier-Mail website on July 25, 2012: http://www.couriermail.com.au/business/australian-mining-companies-are-exploring-options-in-the-new-burma/story-fnefl294-1226435172339

And Perth Now: http://www.perthnow.com.au/business/australian-mining-companies-are-exploring-options-in-the-new-burma/story-e6frg2r3-1226435172339

Tuesday 24 July 2012

Myanmar's mining laws hold back gold rush of investment

Laws stifle investment in mining sector

By KATE KELLYThe Democratic Voice of Burma
Published: 25 July 2012
mining conference
Jon North, CEO of Canadian exploration firm Northquest, speaks during the Myanmar Mining Summit in Rangoon on 23 July 2012. (Kate Kelly)
International mining companies flocked to Rangoon this week to scope out opportunities in the resource-rich country’s untapped minerals sector during the first Myanmar Mining Summit.
As the impoverished nation emerges from over half a century of military rule and western countries have eased trade and investment sanctions, foreign investors have been flocking to the dilapidated economic capital of Rangoon to seek their fortune in the country.
But Burma’s restrictive regulatory framework, including an export ban on raw ore and select mineral commodities such as gold and coal, an inhibitive Production Sharing Contract (PSC) arrangement combined with a lack of legal and physical infrastructure, means many interested companies will be adopting a “wait and see” approach.
One of the major bones of contention involves the 30-70 profit sharing ratio, stipulated under the country’s 1994 mining law, between a foreign company and the Burmese government, which does not act as an equity partner but takes a hefty percentage of the total resource extracted on top of royalties and income tax.
“That means you risk all the money, you risk all the development then you give the government a share of the production free of charge, on top of royalty,” said Stephen Everett, an Australian investor interested in Burma’s gold and copper opportunities.
“People will not invest on that basis – not on a large-scale, anyway,” he said.
Investors and experts pointed to many grey areas in the legal framework, saying law and practice are two different games in Burma, with some government officials explaining everything was open to negotiation.
“Foreign investors can negotiate the Production Sharing Ratio (PSR) with the relevant mining department,” said Daw Ma Thu Za, an expert on foreign investment from the Myanmar Directorate of Investment and Company Administration (DICA).
“Everything seems negotiable – but no one’s going to sign that deal – it’s just not profitable,” said one western Australian investor who asked not to be named, adding companies would prefer to try their luck in countries with more attractive legal framework such as Indonesia or the Philippines.
Other sticking points included prohibitions on the export of raw ores, trading restrictions and the bureaucratic hurdle involved in negotiating the rights to an exploration permit from the Burmese government.
While the country’s untapped mineral wealth coupled with the absence of geophysical data and out-dated geological surveys could tempt eager exploration firms to rise to the challenge, investors will most likely wait for more attractive legislation, including the release of the long-anticipated Foreign Direct Investment (FDI) law and updated mining law.
While Burma’s current mining framework might not be inviting to big investors, Richard Taylor, general manager of Melbourne-based boutique firm Five Corners Consulting and a speaker at the conference, said small to medium firms were well-placed to make the first move and test the waters in Burma’s mineral sector.
“The junior exploration plays a very significant role in stimulating the interest in getting the high-risk exploration activity underway within a country and it is these people which we will see larger companies follow,” said Taylor.
“They are going in at a point where the mining law is in its infancy and down the track if Burma pursues an attractive and open mining system you will see larger companies taking part in a very promising country.”
Australians Stephen Everett and John Bovard said it was their first time in the country and were in attendance at the mining conference to explore opportunities in gold and copper operations in Burma.
Everett, chairman of exploration company Global Resources Corporation Limited, and Bovard, principal of Sterling Mining Group, said smaller Australian exploration and mining firms were well placed to enter Burma.
“Australian entrepreneurial junior companies are often the first movers going into remote areas,” said Everett, pointing to examples of South America, Africa and parts of Asia.
“We have a significant track record in terms of being ahead of the game in terms of exploration processing.”
The lack of large multinational mining firms active in Burma makes it an ideal location for small-scale mining firms to invest in the country’s unexploited mineral deposits, said mining experts.
One Canadian firm applied in June for a licence to explore for gold deposits in the country’s remote central region and says it’s “very optimistic” their permit will be granted by the government.
“Burma will have an explosion of discovery, just like Canada did,” said Jon North, president and chief executive officer of Canadian firm Northquest.
According to the North, Burma had undertaken small-scale exploration in the past but previously lacked the modern technology necessary to identify rich mineral deposits.
The country has great potential for gold mining he said, and foreign investors could bring in the needed capital and technological expertise.
The more than 300 delegates from over 25 countries in attendance, who paid about US$2,600 for an individual ticket to attend the three-day conference, reflected the vast levels of interest in the reforming country’s untapped minerals sector.
However, Burma’s current restrictive legal framework means many companies may hold onto their cash and wait for a more attractive investment environment to develop.
-Kate Kelly is a pseudonym for a journalist working inside Burma.

This article was first published on the Democratic Voice of Burma website on 25 July 2012:
http://www.dvb.no/news/laws-stifle-investment-in-mining-sector/23025
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Sunday 22 July 2012

Burma set to join transparency initiative

Burma set to join transparency initiative

By KATE KELLY
Published: 18 July 2012
mining-burma
Mining operations inside Burma. (Reuters)
Burma took another step forward in committing to improve resource revenue transparency generated from its rich oil, gas and mining sectors on Tuesday by announcing plans to sign up to a set of global standards.
The former pariah nation plans to implement the Extractive Industries Transparency Initiative (EITI), a sign of its commitment to the reform process, said Jonas Moberg, head of the EITI International Secretariat.
“Many countries haven’t seen huge benefits from their natural resources,” Moberg told reporters at the press conference at the British Council headquarters in Rangoon on Tuesday.
“We’ve seen a paradox of plenty or a resource curse,” he said, adding that without the right checks and balances in place, rich resource reserves have sometimes led to corruption, imbalanced economies while fuelling and contributing to conflicts.
Moberg said the Burmese government’s commitment to EITI was a “reflection to what appears to be a genuine reform effort” and he was “very encouraged” by the government’s response that was “well above expectations.”
The initiative serves as a tool for the public to be able to better hold the government to account for how it is managing revenue from these sectors, Moberg told reporters in Rangoon at the close of a two-day visit to Burma where he met with senior government officials, including Minister of Industry Soe Thein, opposition leader Aung San Suu Kyi, and several civil society organisations.
EITI sets the global standard for transparency in the oil, gas and mining sectors and has been adopted by 36 countries, including several countries in the region.
As a voluntary initiative implemented by governments, EITI requires companies to publish all payments made and governments to disclose sums received, while an independent administrator oversees the final figures to ensure they match up.
Moberg stressed that while the Burmese government’s commitment to EITI would help rebuild public trust and confidence, it was just one small step on the road towards reforms and genuine democracy.
“Transparency is not an end in itself,” said Moberg.
“It is a means to other ends, it is a means to improved accountability, to fight corruption and hopefully to build trust and confidence amongst citizens in how this so often so critically important sector is managed and governed,” he said.
Burma’s President Thein Sein and Minister of Industry Soe Thein, who also runs the Myanmar Investment Commission (MIC) that oversees all new foreign investment, have been vocal in their support of the EITI.
“We are preparing to be a signatory to the Extractive Industries Transparency Initiative to ensure that there is maximum transparency in these sectors and try to make sure the benefits go to the vast majority of the people and not to a small group,” Thein Sein told the Financial Times last week.
“EITI is one part of the puzzle of effectively managing natural resources,” said Jared Bissinger, a PhD student at Australia’s Macquarie University who is studying Burma’s economy.
“But it’s not everything. You also need a well-informed populous, a strong civil society that can help hold government accountable, and mechanisms through which these groups can hold the government accountable,” he said.
“It’s also helpful if the government can spend resources efficiently and produce tangible benefits for the people.”
However, standard EITI reports don’t extend to cover social spending and countries aren’t required to report on how they spend the money earned from extractive industries, said EITI country manager Dyveke Rogan.
Resource revenue allocation is a government responsibility in accordance with the initiative, although in some cases countries had voluntarily extended their reporting to include information on how resource revenue was spent on local communities.
“There are countries where the reporting covers some sub-national transfers such as revenue-sharing agreements between central and regional governments,” said Rogan.
“But that’s really up to the multi-stakeholder group and the commission to decide whether they want to implement those things,” she said.
Maw Htun, an independent researcher on foreign investment said the Burmese government’s move will be welcomed by the many international companies eyeing the Southeast Asian nation’s vast natural gas reserves and mining sector.
“Previously, such companies would face heavy reputational risks for engaging with Myanmar [Burma] due to concerns over rights abuses, lack of transparency and corruption, but the announcement to sign up to the EITI will be seen as a positive step for both the government and for foreign investors,” said Maw Htun said.
“Transparency is becoming a precondition for such investments,” said the researcher.
Burma’s opposition leader Aung San Suu Kyi previously requested foreign investors not to engage with a state-owned enterprise with close links to the military government Myanmar Oil and Gas Enterprise (MOGE), due to concerns over lack of transparency.
Last week the US government signalled the green light for American firms to invest in Burma, including the notoriously murky MOGE, on the conditions firms adhered to strict reporting requirements.
However, Moberg said he’d raised the issue of MOGE complying with international best practice guidelines – through engagement with the EITI – with Suu Kyi during his two-day visit to the country.
“We discussed this topic and I think she too would say it’s a good start – but it’s not the place to stop,” he told reporters.
Open and transparent reports on resource revenue will also be powerful tools of reference for communities, parliamentarians and civil society organizations, said Maw Htun, adding there were yet-untested opportunities for independent and active civil society participation as part of the multi-stakeholder group.
However some foreign analysts have expressed doubt over the ability of the Burmese government to effectively create a functional, independent multi-stakeholder group to oversee the EITI process, stating lack of capacity and pervasive corruption as two key issues.
“It’s extremely problematic that civil society requires a significant amount of capacity building in order for EITI to function properly. In addition, the government certainly lacks the technical capacity to properly negotiate the parameters of EITI and to comply,” said one International expert in conflict analysis who spoke on the condition of anonymity.
“Given the high level of corruption and pervasive crony-ism, it’s hard for EITI to exist to its fullest potential,” the analyst said. “These concerns are not necessarily the ‘fault’ of EITI but rather the fact that Burma was/is not ready for a large amount of rapid investment.”
-Kate Kelly is a pseudonym for a journalist working inside Burma.

This article was first published on the Democratic Voice of Burma (DVB) website on 18 July 2012
http://www.dvb.no/news/burma-set-to-join-transparency-initiative/22942 

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Local enterprises call for better access to credit, tax incentives

Local enterprises call for better access to credit, tax incentives

By KATE KELLY
Published: 20 July 2012
Technicians unpack new credit card readers at Myanmar's central bank branch in Yangon
Technicians unpack new credit card readers at Burma's central bank branch in Rangoon on 25 May 2012. (Reuters)
Local companies could be set to receive similar tax breaks and incentives as foreign firms under the Burmese government’s new foreign investment law, as the government seeks ways to even up the playing field, said the leading industry body on Wednesday.
“The locals who are currently doing wholesale/retail do not have the privilege of having these tax holidays,” said Dr Maung Maung Lay, vice president of the Union of Myanmar Federated Chambers of Commerce and Industry, an organisation representing Burma’s private sector.
“But the government have said they are thinking about granting them such tax holidays in order that the playing field will be equal,” he said.
One of the private sector’s central concerns include allowing international firms to open shop with 100 percent foreign ownership, and other tax incentives such as five year tax holidays, said Maung Maung Lay.
Previously, local businesses have spoken out against these sections of the government’s proposed foreign direct investment law, said UMFCCI’s vice president, explaining these terms would put local enterprises, which lack the capital and technology to compete effectively, at a competitive disadvantage against foreign firms.
“The private sector feels that currently the playing field is not level and the government is too generous to the foreigners,” said Maung Maung Lay.
“In that sense, our mom and pop shops will all suffer and become overwhelmed by these potential investors.”
The proposal to extend the current three-year holiday to a five-year tax holiday for foreign businesses was a sticking point for domestic companies, said Jared Bissinger, a PhD candidate at Macquarie University studying Burma’s economy.
“This part of the new FDI law is certainly creating the biggest bones of contention so far and domestic business doesn’t like it,” said Bissinger.“You want to create a level playing field for all business so there’s no need to prejudice one over the other.”
According to Myat Thu Winn, managing director of Shwe Minn Tha Enterprises Co Ltd, Burma’s small to medium enterprises (SMEs) still struggle to access sufficient credit from the country’s weak banking sector to grow their business and will suffer if forced to compete against sophisticated and well-financed foreign companies.
“There are many challenges for the local businessman,” he said. “Our country is very poor and we need foreign investment, not only to provide capital, but to provide new infrastructure and techniques.
“So as a normal Burmese citizen, I welcome foreign investment, but as a businessman I think all companies need to have an equal chance at profitability.”
Local firms wanted to access the same benefits as foreign companies, without having to sacrifice their firm’s independence, explained Maung Maung Lay, saying he’d encountered mutual reluctance from the private sector and foreign investors on the topic of joint ventures.
“Local businesses are concerned they will have to sell their companies, or joint venture, or be overwhelmed,” said Maung Maung Lay.
One local battery manufacturing company said it needed additional capital to expand and compete more effectively against an influx of cheap Asian brands, but due to current banking sector constraints, the only way it could access fresh capital was through a joint venture partnership.
“We are ready to play on the fair ground with foreign investors … but we need better access to finance,” said Ohn Lwin, the managing director of Toyo Battery.
“So if we can get an industrial long-term loan with a low interest rate from the government then we’d be very happy. Then we wouldn’t need to look for a joint venture to provide capital.”
Better access to credit and receiving tax incentives on par with what foreigners are entitled to would help boost local firms, says Ohn Lwin.
“If they give the incentives to the foreigners, say a five year tax break, then we should also be granted five years, that would be fair,” said Ohn Lwin.
The government has not officially announced new tax incentive plans to even up the playing field for local firms, but according to UMFCCI’s vice president the issue has been discussed at government meetings and within his organisation, which acts as a bridge between the private sector and the state.
-Kate Kelly is a pseudonym for a journalist working inside Burma.

This article was first published on the Democratic Voice of Burma website on 20 July 2012
http://www.dvb.no/news/local-enterprises-call-for-better-access-to-credit-tax-incentives/22979 
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Tuesday 17 July 2012

Multinational food giant eyes spot at Burma's table

Multinational food giants eye spot at Burma’s table

By KATE KELLY
Nelson, associated director, Public Relations from US-ASEAN Business Council talks to reporters during news conference in Sedona hotel in Yangon
Anthony Nelson, associated director, Public Relations from the US-ASEAN Business Council talks to reporters during a news conference in Sedona hotel in Rangoon on 16 July 2012. (Reuters)
Published: 17 July 2012
 
Fast food giants Kentucky Fried Chicken (KFC) and McDonalds could soon be on the menu in Burma, industry experts said on Monday.
The US eased sanctions against the impoverished country late last week, days before a massive delegation of America’s biggest business names visited Rangoon over the weekend to explore investment opportunities.
Anthony Nelson, associate director of public relations at the US ASEAN Business Council, told reporters there was mutual interest between American fast food giants and the Burmese public.
“I know that’s something where there’s a lot of interest inside Myanmar [Burma],” Nelson said when asked by local reporters if KFC would soon be making it Burmese debut.
“Some of those restaurant companies are looking at it – I can’t comment on any particular one – but I know that’s something that’s being looked at,” he told reporters at a press conference inside Rangoon’s Sedona Hotel on Monday.
Soft drink giants Coca Cola and Pepsi Cola have expressed their interest in returning to Burma and both beverage brands are already widely available in various local supermarkets.
However, not everyone welcomes the influx of American investment and cultural influence.
“The biggest problem we expect is the non-technical joint ventures or the FDI investments that come in, like Coca Cola,” said Ashoke Kumar Murarka, local business owner and chief executive officer of Tropical Biotechnology Limited.
“KFC and McDonalds absolutely should be restricted – it doesn’t fit into our culture and it’s unhealthy,” said Murarka.
“That’s something that our country does not need,” he said, adding significant investment in energy, agriculture, processing and manufacturing industries was required to stimulate Burma’s economic growth.
But ultimately, the Burmese consumer will make the final decision on what products will be popular, according to Jared Bissinger, a PhD candidate at Australia’s Macquarie University who is studying Burma’s economy.
“Consumers around the world choose companies like Coke and KFC because they like those products,” said Bissinger. “These people have other choices about where to eat and drink but make their choice based on price, taste, or some other factor that they value.
“Competition in food and beverage industries expands consumer’s choices (increasing their welfare), helps bring down price and generally improves quality,” said Bissinger.
He said the role of government should not be to restrict these consumer products but to protect local companies by ensuring an appropriate degree of regulation regarding competition.
“Prohibiting competition and choice in the long run is not the answer, and won’t help companies from Myanmar learn, grow, and compete domestically or internationally,” said Bissinger said.
Nelson said Burma’s population of about 60 million people was an untapped market and the former pariah state offered many different foreign investment opportunities.
“For a lot of companies, this is a blank slate. So it’s a chance to come in and look at what’s missing and how multinational companies might fit into the network that’s already there,” said Nelson.
While there’s definitely a rush of interest, these are still early days for US investors, Nelson said, adding significant US investment could take years.
“The scale of what US companies do isn’t just something that can appear overnight,” he said.
“They make great big investments in a lot of cases so they’re going to start looking, but a lot of the large investment that might come is still further down the road.”
US business heavyweights Chevron, ConocoPhillips and ExxonMobil, along with companies in other sectors such as Dell, FedEx, Google, MasterCard, Dow Chemicals, Procter & Gamble and Time Warner participated in the US/ASEAN Business Council’s first ever official trip to Burma last weekend.

-Kate Kelly is a pseudonym for a journalist working inside Burma.

This article was first published on Tuesday 17 July, 2012 on the Democratic Voice of Burma website:
http://www.dvb.no/news/multinational-food-giants-eye-spot-at-burma%E2%80%99s-table/22931 
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Sunday 15 July 2012

US ups the ante in Burma's economic future

US ups ante in Burma’s economic future

By KATE KELLY
Published: 13 July 2012
To match Insight MYANMAR-BANKS/
A man counts US dollars and Burmese kyats at a money changer in Rangoon on 21 March 2012. (Reuters)
The Myanmar Oil and Gas Enterprise (MOGE) has become the elephant in the room amid debate over whether investment in the oil and gas entity, which has close links to Burma’s former military junta, should be permitted under the US government’s new investment framework.
On Thursday, the US government fired the starting gun for American investors to get down to business in Burma, announcing two general licences permitting new investment in almost all of the country’s sectors, including engagement with MOGE, and the export of financial services.
American extractive industry heavyweights Chevron and Shell are racing to capitalize on the moment, with other big names expected to converge on Burma’s lucrative oil and gas sector, according to Burmese media.  Representatives from Chevron are due to visit Rangoon over the weekend.
Under the new rules, US firms must adhere to strict reporting guidelines to encourage greater responsibility and transparency and those entering into investment agreements with MOGE must notify the State Department within 60 days.
While economists and Burma experts have cautiously welcomed the US’s move to further engage the impoverished Southeast Asian nation as a sign of support for President Thein Sein’s reform process, human rights groups have condemned the announcements.
In particular, the US government has ignored Burma’s opposition leader Aung San Suu Kyi’s concerns by allowing US companies to do business with MOGE, rights group said.
“The US looks like it caved to industry pressure and undercut Aung San Suu Kyi and others in Burma who are promoting government accountability,” said Human Rights Watch business and human rights director Arvind Ganesan in a statement published on Wednesday.
“Business entities in many sectors of the economy, like oil and natural gas, are responsible for decades of human rights abuses,” said United to End Genocide President Tom Andrews.
“By lifting the investment ban the U.S. government is encouraging American companies to get into bed with some of the worst human rights offenders and risk becoming complicit themselves.”
Aung San Suu Kyi has previously urged foreign governments not to allow their companies to do joint ventures with MOGE until it improved transparency and accountability.
“The Myanmar Oil and Gas Enterprise… with which all foreign participation in the energy sector takes place through joint venture arrangements, lacks both transparency and accountability at present,” Aung San Suu Kyi said at a conference in Geneva last month.
When contacted by AFP on Wednesday Aung San Suu Kyi was reported as saying she welcomed the US government’s decision to ease sanctions on Burma but continued to urge for greater transparency.
“We’ve essentially moved from broad to targeted sanctions,” officials from the US embassy in Rangoon said on Thursday, adding the move is a positive demonstration of support for President Thein Sein’s government and will encourage continued progress along the road to democracy.
Economic engagement with US companies would encourage the government’s reform progress and benefit the greater population in Burma, they said, adding the new reporting requirements for US companies will bring the country’s notoriously murky business practices into the spotlight and encourage greater responsibility and transparency.
However some American senators have questioned their government’s decision to allow investment with MOGE warning that doing business with the state oil and gas giant, also the vehicle through which billions of dollars in foreign investment revenue was used to fund the former military regime, risked upsetting democratic reforms.
“We are concerned, however, that the Obama administration has chosen to permit US firms to do business with MOGE at this time,” US Senators John McCain and Joe Lieberman said in a statement on Thursday.
“Under these conditions, we are concerned that doing business with MOGE runs the risk of setting back Burma’s democratic reforms, rather than reinforcing them, as is our common goal.”
American industry heavyweights have been lobbying for the lifting of investment restrictions and the US is the last of the western nations to ease sanctions against Burma. The EU, Canada and Australia have all eased, suspended or scrapped sanctions against Burma and, alongside Asian competitors, already have access to Burma’s economy although Asia, China and Thailand in particular, dominate the lucrative oil and gas sector.
Economists and Burma watchers have cautiously welcomed the US’s announcement, saying economic engagement is vital to help rebuild the impoverished nation’s economy and the US’s move will be viewed as a positive reinforcement of support for President Thein Sein’s reforms.
“I welcome this announcement because by bringing in US players, which if they behave responsibly, could set an industry benchmark to promote transparency which is lacking in Myanmar,” said Maw Htun, an independent Burmese researcher on foreign investment, during an interview with DVB.
Indeed, the strict reporting guidelines could encourage domestic and international companies to step up their game and ensure responsible investment in Burma said economist and Burma expert, Professor Sean Turnell from Australia’s Macquarie University.
“I am somewhat hopeful they might even provoke a sort of ‘transparency contagion’ with respect to other country investors,” said Turnell of the reporting guidelines.
“It is really hard to see any reasonable argument against such transparency.”
Maw Htun said Burmese people needed socially and environmentally responsible investment and hoped the international community could encourage the Burmese government to swiftly adopt international policies such as the Extractive Industries Transparency Initiative (EITI), the secretariat of which is visiting Burma this month.
“We need to encourage the government to adopt this (EITI) immediately and educate [stakeholders] on human rights issues,” he said, adding human rights groups could be instrumental in supporting new, responsible investment in Burma instead of discouraging engagement.
“It’s easy to stand on your moral ground without realising the intricacies of the situation, especially in a country like Myanmar which has been closed to the outside world for so many years,” he
said.
“Even if the government wants to change and commit themselves to greater transparency, without outside help, they lack the knowledge and capacity to instigate these changes.”
Maw Htun says naming and shaming MOGE won’t deter foreign investment in the entity.
Burma’s lucrative oil and gas sector attracted more than US $3 billion during the past decade, according to research by Macquarie University PhD candidate Jared Bissinger, who is studying Burma’s economy.
While MOGE has been singled out, US investors shouldn’t be deterred from exploring investment prospects with the oil and gas enterprise, said Derek Tonkin, chairman of Network Myanmar and former British Ambassador to Thailand.
“It is not so much MOGE the company … which ‘lacks transparency and accountability’ as its shareholders, which are the Ministry of Energy, or the State,” said Tonkin.
“If, as President Thein Sein told the Financial Times earlier this month, Myanmar signs up soon to the EITI, then MOGE would then be instructed to follow standard EITI guidelines. This issue, in short, should be resolved in the near future and Suu Kyi’s concerns should be allayed,” he said.
Tonkin said the US was taking few risks in their measured, step-by-step response which reflected their attachment to conditionality and to the notion of benchmarks.
Apart from approving new legal framework for investment and financial services, the US government has retained its web of overlapping sanctions upon Burma to give Washington leverage just in case the country backslides on its reforms.
US firms investing more than US$500,000 in new projects will be required to report on their policies and procedures with respect to human rights, worker’s rights, land acquisition as well as report any payments exceeding $10,000 to Burmese government entities, a press release from
the US Treasury Department stated.
While resource-rich Burma’s lucrative oil and gas and other extractive industries will no doubt attract intense interest from foreign investors, genuine new foreign investment also requires sufficient legal and physical infrastructure to support it, said Bissinger.
“Resource investments will be a big portion of the next year’s investment in terms of dollar value,” said Bissinger, touting oil and gas, mining, banking, hotels and tourism as the sectors of most interest to new US firms.
Some notable US companies have voiced interest in Burma with soft drink giant Coca-Cola announcing last month it wanted to work in the Southeast Asian nation, which is one of only three countries – including North Korea and Cuba – where it doesn’t directly operate.
Pepsi Cola is hot on its heels, having recently signed a joint venture with local soft drink company called Diamond Star, who will be its local distributer, according to business sources.
Cans of the soft drink are already available in select Rangoon supermarkets.
The new US Ambassador Derek Mitchell took up his post in Rangoon yesterday, just in time to welcome a delegation of heavyweights representing a cross-section of top US firms including oil and gas giant Chevron, pharmaceutical company Proctor & Gamble, Google, Boeing, Coca Cola and Pepsi that are due to arrive in Rangoon over the weekend, according to US embassy officials.
-Kate Kelly is a pseudonym for a journalist working inside Burma.

This article was first published on the Democratic Voice of Burma website on Friday July 13, 2012

http://www.dvb.no/uncategorized/us-ups-ante-in-burma%E2%80%99s-economic-future/22888 
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Tuesday 10 July 2012

Vice President candidate nominated as reshuffle continues

VP candidate nominated as reshuffle continues

By KATE KELLY
Published: 10 July 2012
VP-shot
Aung San Suu Kyi (L), EU Foreign Policy Chief Catherine Ashton (C) and Rangoon region's Prime Minister Myint Swe cut a ribbon during the opening ceremony of the EU Office at Rangoon on 28 April 2012. (Reuters)
The nomination of chief minister of Rangoon Region and former lieutenant general Myint Swe as the new vice president signals another step forward in the country’s reform process, according to analysts.
“Yet another hardliner is being replaced by a reformist,” said one Rangoon-based foreign analyst, referring to the departure of former Vice President and hardliner Tin Aung Myint Oo.
“This is a clear sign that the reforms are being strengthened and the process is going to keep moving forward,” said the analyst who spoke on the condition of anonymity.
Another political analyst said Myint Swe was most likely nominated by his military colleagues for his clean record and support of the reform process.
“He’s clearly on the side of President Thein Sein and on the side of reforms,” the analyst said.
Since rumours of Tin Aung Myint Oo’s resignation began circulating, Burma experts have debated who would be on the short list to replace the vice president.
Sources close to the government say President Thein Sein and his aides have spent the last week narrowing down a list of candidates suitable for the vacant vice-president position, after Tin Aung Myint Oo stood down citing health reasons.
However, some argue the former vice president was pushed out over his refusal to commit to the reform process, corrupt dealings and close links to the former military regime.
Veteran journalist and political analyst Maung Wuntha told The Myanmar Times Thura Shwe Mann, General Ko Ko from the Ministry of Home Affairs, Tin Aye and Htay Oo were some big names speculated to replace Tin Aung Myint Oo.
“To become a vice president, he should have a good relationship with the president as well as opposition parties and politicians inside and outside parliament,” said Maung Wuntha during an interview with The Myanmar Times.
However another analyst said Htay Oo was not chosen because it is likely Shwe Mann, who was groomed for the position of president under former general Than Shwe before being delegated to the Speaker of the Lower House role under current President Thein Sein, might view him as competition ahead of the 2015 presidential elections.
The news of Myint Swe’s nomination comes as the government unveiled a much-anticipated cabinet reshuffle, as President Thein Sein named six new deputy ministers.
The list, published on 10 July in the New Light of Myanmar, states new deputy ministers have been appointed to the union ministries of the Presidential Office, Rail Transportation, Finance and Revenue, Transport, Communications, Posts and Telegraphs and Education.
The respective deputy ministers will be Thant Shin, Chan Maung, Win Shein, Han Sein, Win Than and Dr Myo Myint.
Experts warn more ministerial heads may still be for the chopping block, including USDP member Htay Oo, Information Minister Kyaw San and Electric Power Minister Zaw Min, as the government seeks to push out more hardliners and bring in those who support the reform process.
However, one analyst says former hardliner Kyaw San may be permitted to hang onto his position because of his open support for President Thein Sein’s reforms.
“Kyaw San is a poster child for the transition and in the system – so I don’t see why the government would change him,” the analyst said.
According to the analyst, the government needed to fill itself with people who were committed to the reform process and receptive to the voices of people from civil society, political parties and the private sector as well as pushing forward with economic reforms.
“And in these regards, U Myint Swe completely fits the bill,” he said.
Myint Swe, an ethnic Mon, has risen steadily through the ranks to his current post as chief minister of Rangoon Region and has been outspoken over his support for the reform process.
“We are meeting at a very special time in Myanmar’s history, at a time of transition, of change, and reform, under the leadership of the President U Thein Sein,” Myint Swe told crowds at a Yangon Heritage Trust conference at the Strand Hotel on 1 June 2012.
“We have made great progress in just the past year,” he said.
The former head of the Military Affairs Security department also recently joined forces with opposition leader Aung San Suu Kyi at an opening ceremony for the European Union (EU) representative office in Rangoon and is said to be well respected amongst his political colleagues as well as a good public speaker.
However, Myint Swe’s public comments last year aimed at exile media groups – claiming their reports were tarnishing public perceptions of the Thein Sein administration – have made some question his reformist image.
He issued a warning to Burmese reporters not to share information from scheduled government press conferences with the exile media, who were forbidden to attend.
“[The exile media] is not allowed to attend these meetings and those of you being allowed to attend should contemplate this. If we hold these meetings more often, then there will be more reports by [the exile media]. That is why we are now not holding them often,” U Myint Swe told Burmese journalists during a press conference last July.
The retired lieutenant general and member of the country’s ruling political party, the USDP, was nominated by military appointees on Tuesday, according to state media.
After being nominated by military appointees, his position will be decided by a parliamentary committee consisting of a small number of MPs, including some high ranking members of the military as well as speakers of the upper and lower houses, Khin Aung Myint and Thura Shwe Mann, said sources close to the government.
“After they review, they will report to the combined session on the Monday 16th July,” the source said.
-Kate Kelly is a pseudonym for a journalist working inside Burma.
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This article was first published on the Democratic Voice of Burma website on Tuesday 10 July, 2010.
 
http://www.dhttp://www.dvb.no/news/vp-candidate-nominated-as-reshuffle-continues/22841vb.no/news/vp-candidate-nominated-as-reshuffle-continues/22841 

Sunday 8 July 2012

High Land Prices Deter Investors

Land prices deter investors

By Victoria Bruce
Volume 32, No. 633
July 2 - 8, 2012

Delegates attend an investment seminar in Yangon last week. Pic: Ko Taik
 
HIGH land prices could prove a “deal breaker” for potential foreign investors, especially in the competitive manufacturing industry, experts said last week. Tony Picon, associate director of research with Colliers International, a Thailand-based real estate consulting and brokerage firm, said high land prices could slow Myanmar’s economic development.
“Land prices could become a big issue,” Mr Picon said. “If land is too highly priced it could hold back the development of the country.”
A Hong Kong-based businessman in the manufacturing industry, said the country’s high land prices were a deal breaker for his company.
“Initially, we thought Myanmar was very interesting for manufacturing because it has an abundance of raw materials, labour and land,” he told The Myanmar Times at a foreign investment summit in Yangon last week.
“But the high price of land, coupled with extremely limited infrastructure and restrictive regulations, make it an unattractive option for us to set up shop, especially compared with Cambodia or Vietnam.”
Mr Picon said a well functioning manufacturing industry would contribute to the growth of the country and give much-need employment to the population.
“Manufacturing is where sustainable growth will come from because it feeds into service industries and becomes a self-supporting cycle,” Mr Picon said.
U Maw Htun, an independent researcher of foreign investment, said the government needed to focus on attracting foreign investment in sectors that benefited the community, such as manufacturing.
“The government should consider how much people will directly benefit from the foreign investment coming inside Myanmar,” U Maw Htun said.
“For example, there is substantial investment in the extractive industries but we need to consider how much employment comes from oil and gas and downstream compared to the manufacturing and services industries,” he said.
Mr Picon said oil and gas investment could be a good thing for Myanmar but an over-dependence on extractive industries would hurt the economy.
“Myanmar needs to develop the oil and gas industry to support its internal growth, but the country should take care not to become resource dependent,” Mr Picon said.
Jared Bissinger, a PhD candidate at Australia’s Macquarie University who is studying Myanmar’s economy, said the country needed to be careful not to fall victim to the resource curse.
“Over the past decade Myanmar’s inward foreign direct investment [FDI] has become heavily concentrated in the extractive and power sectors, while investment in manufacturing, services and other secondary and tertiary sectors has been almost non-existent,” Mr Bissinger wrote in his latest journal article, titled “Foreign Investment in Myanmar”, published in Contemporary Southeast Asia earlier this year.
He said Australia was an example of a booming resource economy with high labour costs that in turn placed pressure on manufacturing and other industries that compete internationally.
“Resources can boom and other sectors of the economy can be hurt,” Mr Bissinger said.
“The dangers are [that] you get a lot of resource investment which drives up the currency and can make it difficult for someone to come here and start up a manufacturing facility.”
Alessio Polastri, managing partner of Yangon-based law firm P&A Asia, said high land prices was a major concern among the foreign investors who contacted his company.
“The high price of land is a major deterrent to potential investors, particularly in the real estate and manufacturing industries,” Mr Polastri said.
Mr Picon warned Myanmar’s high land prices could result in potential foreign investors choosing neighbouring Bangladesh or Cambodia as a cheaper alternative to relocate their manufacturing projects.
“Myanmar isn’t the only game in town for those sorts of projects,” he said, adding that land owners needed to drop prices to a more reasonable level in order to attract manufacturing projects.

This article was first published in the Myanmar Times newspaper on July 2, 2012
http://www.mmtimes.com/2012/business/633/biz63312.html

Investors and the new economy

A look into the down side of foreign investment...

Investors and the new economy

By KATE KELLY
Published: 4 July 2012
Maung Maung Aye, one of two deputy governors at the Myanmar's central bank, walks inside the bank's Yangon branch
Maung Maung Aye, one of two deputy governors at the Burma's central bank, walks inside the bank's Rangoon branch on 25 May 2012. (Reuters)
As Burma opens up to the world, experts warn the sharks and cowboys among the many frontier investors converging on the scene could exploit the impoverished nation.
“The sharks are circling and the cowboys are galloping in,” said one Rangoon-based business consultant, who spoke on a condition of anonymity.
“Myanmar is the perfect environment for them to flourish and the absence of big multinationals means there’s little or no competition or standards to adhere to.”
However, foreign investment is not a new phenomenon in Burma as one only has to refer to the billions of dollars spent over the past decade by countries including neighbouring giants Thailand and China, almost exclusively to reap the spoils from the resource-rich nation’s extractive sector.
For Maw Htun, an independent researcher who studies foreign investment, this is a huge concern.
“Myanmar needs investment which benefits its people,” says Maw Htun, adding greater transparency was needed in screening new investment decisions.
“We really need to see what types of investments are coming into the country,” he said.
“The government should consider how much its people will directly benefit from the foreign investment coming into Myanmar.”
The Burmese government is eager to secure foreign investment in the wake of economic and political reforms; however, experts warn too much capitalism too soon could be detrimental to the impoverished country’s development.
Jared Bissinger, a PhD candidate at Australia’s Macquarie University, says Burma could quickly fall victim to the resource curse, which has dominated foreign investment in the past decade.
“Over the past decade Myanmar’s inward foreign direct investment [FDI] has become heavily concentrated in the extractive and power sectors, while investment in manufacturing, services and other secondary and tertiary sectors has been almost non-existent,” wrote Bissinger in his latest journal article, “Foreign Investment in Myanmar”, which was published in Contemporary Southeast Asia earlier this year.
“Resources can boom and other sectors of the economy can be hurt,” says Bissinger.
“This is the time to attract responsible investment and discouraging responsible investors is a negative approach”
Maw Htun says while the Burmese government accepting millions of dollars from foreign investors eager to exploit the impoverished country’s rich resource reserves, little financial benefit has been seen by local communities.
“Instead of inviting all those extractive industries, we should have some cooperation with well-known and renowned international companies to work with the government and improve their transparency, accountability and corporate social responsibility,” says Maw Htun. “If the government can do that, it will benefit everyone.”
Speaking at a conference in Geneva last month Burma’s Nobel Peace Prize winner Aung San Suu Kyi urged foreign governments not to allow their companies to enter into joint ventures with the state-owned oil and gas company, Myanmar Oil and Gas Enterprise, until its improved transparency and accountability.
“The Myanmar Oil and Gas Enterprise (MOGE)… with which all foreign participation in the energy sector takes place through joint venture arrangements, lacks both transparency and accountability at present,” said Aung San Suu Kyi said.
However, while her statements might have been welcomed by human rights lobby groups and encouraged senators to put more pressure on the US government, they appear to have done little to deter investors, with a Hong Kong-based corporate events company seeking a speaker from MOGE to address hundreds of fund managers and institutional investors at an upcoming oil and gas summit in Singapore.
It seems this is a risk that some impatient investors are willing to take in order to reap the rewards of investing in Southeast Asia’s final frontier.
U Ken Tun, chief executive officer and president of Burmese junior oil and gas exploration firm Parami Energy, said scaring away large, reputable investors would only leave more room for the scavengers to survive.
“This is the time to attract responsible investment and discouraging responsible investors is a negative approach,” says U Ken Tun.
“If we scare away responsible investors, instead these scavengers come in and the whole cycle will start again.”
U Ken Tun said many operating within Burma needed to change their mindset from being profit-taking and contribute to the greater wealth of the impoverished nation’s economy.
However, he said this transition would not happen overnight.
“People who are used to operating on a profit-oriented mindset will find it very hard to change,” says U Ken Tun.
“I hope businessmen who really want to improve this country can take part in this movement.”
The Burmese government have appealed to western investors to come in and change the status quo, with Deputy Minister for Ministry of National Planning & Economic Development, Dr. Kan Zaw, telling a roomful of foreign investors at a conference last month that western countries would soon replace Thailand and China as Burma’s top investment partners.
“Western investors will be the top investors in Myanmar in the coming years,” said Dr. Kan Zaw to a crowd of participants at the 2012 New Myanmar Investment Summit on 21 June.
But for now, the biggest players in Burma continue to be amongst the country’s ASEAN neighbours whom Burma understandably developed stronger ties with during the years of strict western sanctions.
However, Burma simply isn’t an attractive investment option for many western firms, according to American lawyer Steven Dickinson, who recently visited Rangoon to attend the investment conference.
“Other than for oil and gas, European and American companies won’t come to Myanmar for some time,” says Dickinson who works at Hong Kong-based law firm Harris & Moure.
Dickinson said the lack of infrastructure and high operating costs coupled with political instability and a crippled banking system would deter many western investors, particularly those in the manufacturing industry.
“That’s a bad thing for Myanmar because there are people who are going to come in here, particularly for the areas of oil and gas and minerals and teak,” says Dickinson.
“And those investors are going to strip the country bare, leave the money in the hands of a few top people and give very little back to the general population,” he says.
“Many companies, especially from ASEAN, think Myanmar is a sure bet and as a result, they will rush in and conduct business in the most shoddy and informal methods you can find,” says one Malaysian businessman.
“And at this moment, a number of local Myanmar businessmen seem to hint at using this method because the policy making is really slow,” he said.
“It’s like the Wild West here at the moment and there are a lot of cowboys coming in,” the source said.
He said the lack of formal legal structure and proper guidelines left a huge grey area for eager investors to exploit the system.
The challenge Burma now faces is how to sort the wheat from the chaff in encouraging a new strain of socially responsible investors to help redevelop the impoverished country.
Maw Htun said new, socially responsible investments were needed to improve the livelihood of local communities.
“Otherwise the local community will still be marginalized and receive only the negative impact of the investment, which will cause resentment,” says Maw Htun.
-Kate Kelly is a pseudonym for a journalist working inside Burma.
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This article was first published on the Democratic Voice of Burma website on July 5, 2012
http://www.dvb.no/uncategorized/investors-and-the-new-economy/227633