Tariffs and policies: The crux of Myanmar’s power problem

In 2017, Myanmar is projected to generate a maximum of 2,700 megawatts of electricity, up from around 2,500 MW in 2016, as the population expands and demand for power in the country continues to rise. Yangon, its largest city, is expected to generate almost half, or 1,300 MW of the country’s maximum electricity demand for the year, and that is expected to rise by 30 percent per year in 2018 and beyond.

Yet, that is just a fraction of the total energy consumed in Myanmar and 10pc of Thailand’s annual maximum demand. According to the Asian Development Bank’s (ADB) Energy Sector Assessment, Strategy and Roadmap dated December 2016, total final energy consumption in the country totaled some 14,000 MW in 2012-13. The bulk of that energy is produced via traditional biomass – firewood or agricultural wastes – and used mainly for cooking and lighting in rural Myanmar.

But things are changing quickly as the economy develops. With foreign investors taking a keener interest in Myanmar, the government is under pressure to provide companies and businesses with reliable sources of electricity to operate. “We need lots of power. We need billions in investment,” Aye Kyaw Kyaw, secretary of the Yangon Region Electricity Development Management Committee, at the 2017 Myanmar Green Energy Summit in Yangon today.

To that end, two major master plans setting out targets and strategies for electricity supply and demand have been drawn out. One is the Myanmar Energy Master Plan by the ADB and another is the National Energy Master Plan by the Japan International Cooperation Agency. “Any plans for power generation at the regional level in Yangon must be in line with these two master plans. But, all the goals set out in previous master plans have hardly been implemented and we have missed all the targets,” Aye Kyaw Kyaw said.

Loss-making tariffs

The main reason for the persistent shortfall is overly low electricity tariffs. Currently, the government is losing US$300 million a year by subsidising tariffs, particularly to the residential sector. That means it is paying more to generate electricity than it is receiving from distributing power to the public. Meanwhile, it is running a fiscal deficit that is fast approaching 5pc of GDP. As such, building new infrastructure to expand the production of energy in the country is stymied by the government’s lack of fiscal flexibility.

“The electricity tariff to residential consumers is very low and day by day their demand is rising. Even now, some shopping centers have resorted to running their own generators because we cannot supply enough power for them,” said Aye Kyaw Kyaw.

“This is the biggest obstacle in the energy sector. Investors come with financing and ideas to boost energy production. But we cannot connect the funds to the demand until the government is able to get out of the red,” he said.

“We can only move ahead with expanding power production when the tariffs are revised to more sustainable levels. The government is preparing a national energy policy. After it is approved, they will be able to review and revise the tariff policy to more sustainable levels.”

Confusing policies

Another obstacle is the lack of clear and transparent policies. For example, under the new electricity law, regional governments are permitted to authorise new power plant projects with power generation capacities of not more than 30 MW. “However, according to the constitution, regulations enforcing the law must follow within 90 days. But since 2014, those regulations are still under preparation,” said Aye Kyaw Kyaw.

Even if the region had the authority to approve, there is still a grey area over which level of government signs the power purchase agreement and who sets the tariffs. “That is the biggest issue. For foreign investors who want to invest, they will need bankable documentation like the PPA, which the regional government may not be able to sign. That needs to be sorted out.”

Sometimes, regional governments must also negotiate with the state government for approvals to build new plants under their own regional master plans. For example, Yangon is planning to upgrade and expand its aging power infrastructure. “However, we always have to wait for the Union government to review and approve so things move very slowly. That is why we have never our achieved our targets in the past two years. Of the 10,000MW of installed capacity targeted for 2017-18, we have only achieved half. And, as time passes, the gap between our targets and reality widens,” he said.

All that deters potential investors, many of which can easily help the government generate pockets of additional energy across the country. “Many independent power producers can easily generate 30MW of power through renewables and other means. The private sector can help to generate power for the country but this is inhibited by the lack of communication between the regional and state governments,” one member of the Renewable Energy Association of Myanmar said.

What needs to be done? The way Aye Kyaw Kyaw sees it, “we must have a clear energy, tariff, investment and financial policy so that we can draw up a practical master plan and implement it.”

“Investors from Germany, the US, China, South Korea, Singapore, Malaysia and Japan have been knocking on our doors wanting to invest in our energy infrastructure and other sectors of the economy. There is a lot of opportunity. But, to be practical, we first need to do our homework and set up the proper policies so that everyone benefits from these investments,” he said.

And how long will it all take? Aye Kyaw Kyaw said: “We know our problem. And sooner or later we will solve it.”

Source : Myanmar Times