Onshore Oil

Focus Energy, a small oil firm operating in Burma that is owned by a British Virgin Islands registered holding company, announced in October that it is to spend US $4 million on appraisal and development wells at the Kanni and Htaukshabin fields, that it jointly operates with the government-owned Myanmar Oil and Gas Enterprise, or MOGE. Meanwhile, Indonesian-owned firm Goldpetrol is to spend $8 million on drilling in MOGE’s Yenangyaung and Chauk fields.

In the mid-1990s, concerned at its declining onshore oil production, the government invited foreign companies to come in and operate existing and depleted MOGE fields and try to boost output (according to official figures, oil production peaked at around 30,000 barrels per day in the mid-1980s then gently dropped to fewer than 10,000 bpd by 1997). The contracts were mostly based on MOGE paying for oil produced from a particular field above that field’s decline profile. Alas, the ventures have been less than happy.

The two fields run by Focus Energy, which entered Burma in 1997, with daily output at about 2,500 bpd, now produce less oil than they did when they were run by MOGE, according to a recent article in the Myanmar Times.

Goldpetrol, which also entered Burma in 1997 and claims 2,000 bpd from Yenangyaung and another 540 bpd from its Chauk field, initially planned a combined output of 10,000 bpd by 2007.

American oil services giant Baker Hughes signed an MOU with MOGE in 1996 to boost the Mann field above its then production of 3,100 bpd. The firm was wildly over-optimistic with regard to how much it could produce above the field’s decline profile. Original projections assumed that output would be boosted by 3,000-6,000 bpd. In the event, production was increased only about 740 bpd above the decline profile. Then it took MOGE a long time to pay because the Ministry of Finance and Revenue, not MOGE, had authority to sign the checks.

In 2000, in a joint-venture with Myanmar Petroleum Resources, Baker Hughes spent millions on drilling in the field. Then pulled out leaving the operation to its erstwhile JV partner.

The General Malaise

Registering a company in Burma was a bureaucratic nightmare (though slightly easier than registering in Haiti or Zimbabwe, according to a survey earlier this year) even before the October 18 putsch. Then keeping a firm running is a challenge. The government seems to be determined to make it even harder.

In October 2003, the Ministry of Commerce started issuing company registrations that were valid for only two-year periods for Burmese-owned firms. Which meant that a firm could go into business, but could not be confident that it would be allowed to operate in two years’ time.

If one is tempted to blame consumer boycotts and US sanctions for foreign companies avoiding Burma, the regime has done a pretty good job at discouraging foreign investment on its own. In 2002, the government decreed that all foreign firms must export at least 60 percent of production—even operations that were set up for import substitution. That’s in addition to having to pay for rent, electricity (when it’s on) and telephone bills in dollars.

Moreover, foreign-owned companies that are registered and operating in Burma require a “Permit to Trade” to do any business in the country except activities related to embassies and UN organizations.

Permits to Trade are issued by the Ministry of Commerce and must be renewed every two years. For the last two years the commerce ministry has declined to renew many permits to trade. There was no stated official policy on the issue. Foreign firms trying to renew their permits are simply told they are “pending”.

Oil Prices No Problem

According to a September issue of the Myanmar Times, Burma’s Ministry of Energy is not concerned about high oil prices. Director-general of the ministry’s Department of Planning, Soe Myint, even claimed that current demand is roughly in equilibrium with domestic supply (even accounting for condensate drawn from the Yadana and Yetagun fields since they started production, crude oil output is well under half what it was in the mid-1980s—and Burma wasn’t a net exporter then).

Diesel and gasoline smuggling from bordering countries and by sea is common. No one knows how much petroleum the country consumes—but the vast majority is imported.

Government ministries are provided subsidized fuel from the Syriam refinery, some of which is sold off at market rates. But the refinery doesn’t produce enough diesel, so much is imported. The government recently announced a plan to reduce its reliance on diesel by converting 2,000 vehicles to run on natural gas—but that would require replacing the diesel engines with gasoline engines (gas needs a spark plug to ignite).

The Trade Policy Council

Deputy Sr-Gen Maung Aye’s record as chairman of the Trade Policy Council gives little cause for optimism.

In 1998 the Trade Policy Council was set up with overall control of all issues related to private sector commerce. The council was probably formed to weaken the position of Khin Nyunt, who had loyalists in charge of all the relevant ministries that would have to answer to it.

Maung Aye immediately rolled back many of the modest economic reforms put in place over the previous nine years (most of the liberalization happened 1989-94 under Brig-Gen David Abel). It became very difficult to get import permits or the licenses required to open a factory. Issuing permits became a major instrument of patronage.

Unable to get import permits for raw materials, foreign businesses pulled out; Burma became possibly the most expensive place in the world to buy a second-hand car; the economy continued its downward spiral.