An industry-crippling jet fuel monopoly breaks

A domestic airline has received approval to sell aviation fuel in a decision that has ended a monopoly and raised hopes of cheaper prices and better service.

GOLDEN MYANMAR Airlines has received Myanmar Investment Commission approval to operate an aviation fuel business, in the first sign of competition for the state-backed monopoly that airlines say has undermined their viability.

Golden Myanmar Airlines Public Co, Ltd received permission for the “importation, storage, distribution, transportation and into plane fuelling of jet fuel” at an MIC meeting on April 5, according to the Directorate of Investment and Company Administration.

MIC stated that the wholly Myanmar-owned venture would operate at Tachileik, Kawthaung, Nyaung Oo, Heho, Sittwe and Myitkyina airports, as well as Mandalay International Airport. It will also have a jetty terminal at Thilawa in Yangon Region.

However, the new venture does not appear to have received permission to operate at Yangon International Airport, the country’s busiest airport and the base for most domestic airlines. This has raised doubts about whether it will really be able to compete with the incumbent player, National Energy Puma Aviation Services (NEPAS), and potentially bring down prices.

The monopoly
State-owned Myanma Petroleum Products Enterprise was the sole supplier of aviation fuel in Myanmar until 2015, when it formed a joint venture with Singapore’s Puma Energy following a tender.

The joint venture, NEPAS, operates at 11 airports, and is currently the only source of aviation fuel. Airlines and industry observers have said the lack of competition is a factor in high operating costs. Over the past two years, five domestic airlines have ceased operations, leaving five private carriers and state-owned Myanmar National Airlines.

Neither MPPE nor Puma Energy, which operates in 48 countries and reported net sales of US$17.9 billion in 2018, responded to requests for comment.

U Aung Kyaw Htoo, an assistant secretary at the office of the minister for electricity and energy, conceded that there was widespread displeasure with NEPAS over both fuel pricing and the quality of its service.

He said this was not limited to the private sector, with the Ministry of Transport and Communications also “unsatisfied” at the decision to grant NEPAS a monopoly. The aviation fuel price was not just a problem for domestic airlines, Aung Kyaw Htoo added. “Most foreign airlines try to avoid refueling in Myanmar as much as possible.”

Aung Kyaw Htoo said that when MPPE was questioned about aviation fuel prices, it had explained that the joint venture charged a high rate to customers in Yangon and Mandalay so that it could subsidise loss-making operations at smaller regional airports. Costs associated with importing aviation fuel, including tax, also made it relatively expensive in Myanmar, he said. “MPPE have reported that they are reviewing the prices regularly,” he said.

U Thuta Aung, an economist and member of the Myanmar Competition Commission, said the high prices were “probably” due to lack of competition, but added that this was only a personal opinion and the commission had not investigated the issue.

“Yangon port is small so importing fuel to Myanmar will be more expensive but it doesn’t have to be significantly more expensive,” he said.

Yangon was unlikely to develop as an aviation hub if airlines cannot access reasonably priced fuel, he said.

“If we still have ambitions for direct flights to Europe, for example, it’s important that airports of Myanmar become attractive places for refuelling,” he said. “[And] if we are really serious about making the domestic aviation sector work, something will have to happen with fuel.”

The new competitor
Established in 2012, Golden Myanmar Airlines operates flights to 10 destinations using two ATR 72-600 aircraft. The company is linked to U Khin Maung Aye, a prominent tycoon who is also chairman of KMA Group and CB Bank.

Frontier understands that the company had been seeking permission to enter the aviation fuel business since at least last year, but had trouble getting government approval.

A spokesperson for the airline confirmed that the company’s application for an MIC permit was “delayed due to the government process”.

He said the company believed that prices charged by NEPAS were unfair. Elsewhere in Southeast Asia, petrol, diesel and aviation fuel are all similarly priced, he said, but in Myanmar aviation fuel is significantly more expensive than petrol and diesel.

“If we get the chance, we want to sell aviation fuel at a fair price … we will never monopolise the market the way they [NEPAS] have,” he said.

Golden Myanmar Airlines also wanted to see more companies, both Myanmar and foreign, enter the aviation fuel business, he said.

“That would be great for the airlines because then they can choose the supplier they prefer and the price should decrease through competition,” he said. “The high price of jet fuel is one of the main reasons why airlines in Myanmar are struggling and that some have failed.”

Thuta Aung said he had some potential concerns over an airline running an aviation fuel business.

For example, if Golden Myanmar Airlines refused to sell fuel to rival airlines, or charged them more than itself, it could potentially find itself the target of a Myanmar Competition Commission investigation.

“Whenever you own the whole value chain, of course it makes your business more profitable, but it’s a matter of fairness. If you’re a fuel provider and provide the same rate to everyone, then that’s really not a problem provided the whole thing is transparent. You have to do business with everyone on equal terms,” he said.

“Right now, it’s hard to say whether the Golden Myanmar Airlines aviation fuel business will be an improvement.”

Source: Frontier Myanmar

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