Myanmar’s hydrocarbon sector is an attractive target for foreign investors. Three major issues, however, present a significant challenge to foreign companies planning to invest in Myanmar: onerous government policies, community resistance to infrastructure projects, and security concerns.
Companies are relatively powerless to affect government policy, but by employing community engagement programs, they can mitigate community resistance and security concerns. As shown by the experience of the Sino-Burmese pipeline project, energy sector investors should engage with local communities when carrying out such programs, and they should not rely solely upon interfacing with government entities.
Hydrocarbon prospects
As Myanmar continues its dramatic opening to international markets, oil and gas projects will be an attractive investment target. There are numerous media articles speculating that Myanmar contains vast oil reserves, with a recent estimate that Myanmar has potential reserves on par with Brazil. There are also reports of small-scale homegrown oil extraction projects that have transformed local communities. The country has yet to undergo rigorous testing to determine the exact size of its reserves, but such speculation and anecdotal evidence is a tantalising prospect for foreign businesses.
China’s development of the offshore Shwe gas field and the accompanying Sino-Burmese pipelines are the most high-profile hydrocarbon projects currently underway in Myanmar. After China, Thailand is the most active player in Myanmar’s hydrocarbon sector. It is engaged in the Yadana and Yetagun offshore fields, and it holds a licence that covers much of the Zawtika field in the Gulf of Martaban. Operations in Zawtika are due to start shortly, with two thirds of gas production destined for the Thai market. In March 2014, several Western majors joined Myanmar’s offshore game; Shell, Chevron, and Statoil all acquired acreage in a highly publicised offshore bid round.
Investment challenges
Despite the appeal of Myanmar’s hydrocarbon sector, government policies could decrease oil and gas companies’ desire to invest. There are reports, for instance, that Nay Pyi Taw will impose onerous revenue-sharing requirements well above the international average, channelling up to 85 percent of earnings to government coffers. Burmese officials have also become more vocal about the need to reserve some gas production for domestic consumption; the country suffers from poor electricity access, a dilemma it wishes to address with gas-fuelled power plants. Corporate social responsibility requirements remain unclear, but they will likely be implemented, thereby siphoning further revenue off towards community development initiatives.
Another issue that dampens Myanmar’s attractiveness to energy investors is local community resistance to infrastructure projects. Communities fear losing land, jobs, and livelihoods, and this popular discontent could pressure the government to enact measures against the interests of investors. China’s turbulent experience with the Sino-Burmese pipeline project best illustrates vocal community resistance. There are several local interest groups in Myanmar, most notably the Shwe Gas Movement, which regularly demonstrates against the project. Their discontent is augmented by reports that the Burmese government has not distributed funds intended to compensate affected local communities.
A third factor that challenges investment prospects in Myanmar is security concerns, once again illustrated by the Sino-Burmese pipeline project experience. In May 2013, ethnic minority guerrillas attacked a compound owned by the Burmese company involved in that project, killing two people. The compound was located in Shan State near the Chinese border, close to the pipeline’s route. In January 2014, clashes between Burmese and Chinese workers at a worksite along the pipelines’ route reportedly led to the destruction of an oil storage facility. Such security concerns are likely at least partially responsible for delays in the project’s development, which was to become fully operational in late 2013.
Community engagement
Although energy companies are relatively powerless to affect onerous government policies, they could employ community engagement programs in Myanmar to overcome the challenges of community resistance and security concerns. Community engagement programs are driven by comprehensive consultations with community leaders that identify their concerns and grievances. Those concerns and grievances are then addressed through negotiations and local partnerships. Community engagement programs are directly driven by business concerns; by including local communities as stakeholders in an infrastructure project, those communities become invested in the project’s success, thereby eliminating community resistance.
Equally important, community engagement provides an intangible layer of security around large infrastructure projects. In the chance that an infrastructure project is targeted by an impending attack, community members will either actively protect the project, or at the very least notify authorities of the danger. In some ways, community engagement is similar to the strategies used by development workers to ensure their own safety; instead of protecting themselves with weaponry or armed guards, development workers integrate themselves into local communities to ensure that other community members will assist them in a dangerous situation.
Although similar, community engagement is distinct from corporate social responsibility (CSR). CSR is primarily driven by a desire to do good, as well as by an intention to improve a company’s image through community development work, which is vaguely expected to improve the company’s business prospects. The problem is that, from a business perspective, CSR is unsustainable because it doesn’t explicitly align with the profit motive of a private company.
Lessons from the Sino-Burmese pipelines
As previously mentioned, the Sino-Burmese pipeline project has faced community resistance and security concerns. There are indications, however, that the consortium in charge of the project has attempted some form of community engagement; it has reportedly allotted $20 million in “livelihood security” for local communities affected by the project. The money has been channelled into numerous projects, including schools, kindergartens, hospitals, health care centres, a reservoir, and electricity transmission lines.
The consortium’s attempts did not have the intended effect, however, for two reasons. First, the consortium directed the money through the Burmese government, and it wasn’t clear to local communities that the consortium was intending to recompense affected communities. Second, the Burmese government reportedly withheld some of the money and local communities were therefore unaware that they were intended to receive any funding at all. This experience highlights the need for energy sector investors to directly engage with local communities in Myanmar, rather than solely rely upon interfacing with government entities. Investors should actively engage community stakeholders and align infrastructure projects to meet their needs.
