World Bank warns Myanmar to double electricity sector investment

YANGON — Myanmar needs to invest twice as much and implement projects three times faster to address its rapidly growing demand for electricity, the World Bank said.

The figures presented in its Myanmar Economic Monitor, a biannual report released on Tuesday, indicated that Myanmar’s electricity supply will further deteriorate without a steep increase in investment by domestic and foreign suppliers.

The country’s electricity consumption will increase at an average annual rate of 11%, according to the report. Peak demand is expected to reach 12.6 GW by 2030, up 3.5 times from the current level. To meet this demand, Myanmar will need $2 billion per year to build new power plants and repair existing ones.

A structural problem stands in the way: Electricity rates are too low to cover the projected funding costs, and constructing new power plants would mean eventually selling more electricity for less than it costs to generate, thus piling up higher losses.

“The financial position of the power sector has deteriorated significantly over the past few years due to a combination of higher costs and unchanged tariffs requiring large subsidies,” the World Bank said in the report. “The weighted average retail tariffs are 40% below cast cost recovery level.”

In 2014, Myanmar was able to sustain lower tariffs because the low-cost hydro power plants were sufficient to fulfill most of the power demand in the country. But that demand grew rapidly over the past few years, and the supply shifted to gas-fired power plants which were more flexible but costlier.

The losses at the Electric Power Generation Enterprise rose significantly, projected to be 750 billion kyats ($492 million) in fiscal 2018.

The government of Myanmar expects foreign companies to invest in power generation in the country. But negotiations have been deadlocked over the setting of purchase prices, according to people familiar with the matter.

The Ministry of Electricity and Energy in January 2018 authorized Total of France and Siemens of Germany to build a large-scale liquefied natural gas-fired power plant. But negotiations to set purchasing prices for the electricity produced have yet to conclude.

Two other LNG projects authorized at the same time — 1,390 MW project by China’s Zhefu Holdings and the local Supreme Group, and a 388 MW project by TTCL of Thailand — are in a similar situation.

“Tariff increases are crucial to put the sector back on a path of financial vitality,” the World Bank said. But the government is reluctant to raise electricity charges ahead of a general election in late 2020.

Myanmar’s electricity supply has been on the wane for years now. In Yangon, the country’s biggest city, there have been rolling blackouts of four to six hours a day since late April.

Many manufacturing plants and commercial facilities generate their own power. But “the price of diesel fuel, which powers our generator, soared tenfold in May,” a representative of an office building operator said.

Without a political willingness to raise electricity rates so that utilities can earn enough money to invest in upgrades and make repairs, more planned blackouts can be expected during the next dry season, or whenever demand for power peaks.

Source: Nikkei Asian Review

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