Economic Opportunities and Challenges in Rakhine State

Economic Opportunities and

Challenges in Rakhine State

16 January, 2017

Briefing for the Rakhine Commission, Yangon

Agenda

Page Numbers

Investment Climate and Regulation 4 - 10

Extractives Industries 11 - 20

Tourism 21-24

2

Investment Climate and Regulation

3

Key Factors to Attract Economic Development

Labour Quality & Availability

Business & Regulatory

Environment

Location

Risks

Transportation & Supply Chain

Quality of Life

4

Critical Factors for Location Decisions

Critical Location Factors Description: The ideal location should…

Labour Quality…supply a productive and efficient workforce with relevant skillsets and appropriate education. The region

should have good labour relations and regulations

Labour Availability …be able to sustain the required workforce with low competition for labour and low attrition rates

Regulatory Environment…demonstrate pro-business climate with incentives and government support through the permitting &

regulatory process with minimal potential for legal & regulatory risks

Business Environment …have evidence of previous, similar investments and demonstrate the existence of an industry ecosystem

Location Risks...offer informed risk stability and minimize potential for business disruption including political unrest, social

unrest, economic instability, business insecurity, and natural disaster risks

Real Estate…provide a suitable site with appropriate configuration, site readiness, and expansion capabilities. Site

should have appropriate zoning, licenses, and permits

Utility Infrastructure …offer reliable, diverse, and sufficient utilities for electricity, natural gas, water, wastewater, etc.

Supply Chain Access…have convenient access to inbound and outbound needs, including suppliers, inbound raw materials,

existing customers, and future customers

Transportation Infrastructure ...provide strong logistics feasibilities and capabilities by highway, rail, sea, or air, as necessary

Quality of Life...have desirable living conditions: low crime, high safety, low cost of living, high quality of education

systems, and other factors that make a location desirable to live5

Rakhine State’s Critical Location Factors

Critical Location Factors (comparison with other parts of Myanmar) Rakhine Current Conditions (MCRB analysis)

Labour Quality • Lack of skilled and educated labour

Labour Availability • High unemployment rate and low wages.

• Outward migration

Regulatory Environment• Political tensions, including on benefit sharing = permitting risk

• Potential for tax incentives

Business Environment• Plans to develop the Kyaukphyu Special Economic Zone

• Offshore gas

Location Risks• Prone to storms and floods

• Social-economic instability with outbreak of inter-communal violence

Real Estate • Potential for land conflicts with ethnic and indigenous locals

Utility Infrastructure• Lack of electricity supply

• Scope for more gas offtake

Supply Chain Access• Gas available, possibly imported oil

• Lack of access to indirect and raw materials in the supply chain

Transportation Infrastructure

• Strategic location; Deepsea port at Kyaukphyu (Sittwe port under

construction by Essar, Kaladan project) Three airports (also An,

Munawng – not scheduled flights)

• Lack of good rail, road infrastructure to rest of Myanmar

Quality of Life• Security

• Poor education, health, water/sanitation

Legend: Favourable Unfavourable Rakhine’s Current State

6

Regulatory Environment for Investments

Issues Possible Action

2016 Myanmar

Investment Law (MIL)

and emerging draft

Rules

Section 75 MIL Incentives

• Investment Commission with government

approval issues Notification to designate

region for income tax breaks from

commencement of business

• Zone 1 (7 years )

• Zone 2 (5 years)

• Zone 3 (3 years)

• Designate Rakhine or part of it Zone 1?

• Regional “investment promotion

agency”?

7

• Include in the Myanmar Investment Rules

(under discussion) a requirement for local

government/Parliament and local

population to be consulted on proposed

projects seeking MIC permits, and a

transparent process

Regional/Local consultation

• The MIL and draft Rules lack provisions

for ensuring local and regional

government/Parliament consultation prior

to Myanmar Investment Commission

approval

Regulatory Environment for Investments

Current Issue Possible Action

Indigenous Peoples and

Ethnic Nationalities

Art7 EIA Procedures, and

Art 5 Ethnic Nationalities

Law

• Article 5 of 2015 Law on Protection of the Rights of Ethnic Nationalities: “Indigenous Peoples (hta-nay tain-yin-tha) should receive complete and precise information about extractive industry projects and other business activities in their areas before project implementation so that negotiations between the groups and the Government/companies can take place.”

• ‘Indigenous Peoples’ in Rakhine State?

• Better consultation on investment for

and involvement of ALL local

populations, benefit sharing

Environmental and

Social Safeguards

• New EIA procedure is poorly implemented,

poor oversight by government, lack of

awareness

• Confusion about SEZ EIA governance

• Failure to apply legal processes for land

acquisition in 1894 Land Acquisition Act

(esp SEZ)

• Lack of resettlement safeguards or

government capacity

• Capacity building for national, local

government, business/EIA

consultancies, civil society

• SEZ: Ensure formal EIA approval stays

with Ministry in accordance with law

• Revision of Land Acquisition Act

should reflect IFC Performance

Standard 7 on resettlement

8

9

Development Partners working on EIA issues

Norwegian Environmental Agency

• Draft sectoral guidelines for

oil and gas EIAs Other Issues

• Aligning SEZ environmental

governance with Myanmar’s EIA Law

• EIA Procedure Article 8: Inventory of

existing projects with no IEE/EIA

• Mining

Mekong Partnership for

the Environment

• Regional guidelines on Public Participation in EIA is

available for consultation and comments here

Myanmar Centre for Responsible

Business (MCRB)

• Sector Wide Impact

assessments on oil and

gas, tourism, telecoms and

mining

• Multi-stakeholder dialogues

• Oil and Gas IEE/EIA

Disclosure Survey (March

and October 2016)

• Comments submitted to

government on making

Myanmar Investment Law

compatible with

Environmental

Conservation Law and EIA

Procedure

Asian Development Bank (ADB)

• Adoption of the EIA Procedures

(‘environmental impact’ includes

social, socioeconomic, health,

culture, etc.)

• Draft EIA Guidelines

Japan International Cooperative Agency (JICA)

• Draft Administrative Guidelines for report submission

• Registration of EIA consultantsJapan

International

Cooperative

Agency (JICA)

Mekong

Partnership

for the

Environment/

PACT

Norwegian

Environmental

Agency

Asian

Development

Bank (ADB)

Others

Myanmar

Centre for

Responsible

Business

(MCRB) Environmental

Impact

Assessments

(EIA)

Extractives Industries in Rakhine

10

11

Current Oil, Gas and Mining Projects in and off Rakhine State

Mining Projects

1

Three exploration

permits for

MineralsSand in

S. Rathedaung

Township. 1 year

permits,

Ray Myaeshin Co.

1

2

Nay Pu Taung

Marble Project in

Taungup

Township

(operating)

2

Oil and Gas Projects

12

Extractives Industry Transparency Initiative (EITI)

• Candidate Member of EITI since 2014

• Current status to be assessed according to the 2016 Standard

• First MEITI report published December 2015 for the FY13-FY14

• Tax revenues from Korea’s Daewoo on the Shwe Gas Project at 78,772 million

kyats (around $58 million dollars at January 2017’s exchange rate)

• Leading Authority reconstituted Dec 2016. Multistakeholder Group in process of being

reconstituted.

• Deadline for 2nd report is 31 March 2017. Will not be met.

• Failure to publish the report by deadline may result in Myanmar’s suspension from EITI,

but Multi-stakeholder group can request deadline extension from the EITI Board

(deadline end January 2017)

• For extension, Myanmar must demonstrate continuous progress and delays caused by

exceptional circumstances

• Rakhine was designated one of four EITI ‘pilot’ regions/states but no follow-up

First MEITI Report

13

Rakhine State has limited mineral prospects

Nay Pu Taung Marble Quarry

• Simco Song Da Joint Stock Company (Vietnam) permit for large scale mining project to operate for 20 years from 2012.

• The Nay Pu Taung Marble Project is located in Taungup Township. It is expected to export up to 7,850 metric tons of marble

each year for the next two decades. Marble comes in three major colours: dark grey, light grey, brown chocolate

Key Issues in these and other mining projects in Myanmar

• Lack of meaningful consultation and transparency

• Environmental problems, including absence of Environmental Impact

Assessment

• Lack of benefit sharing with the community

Mining

Mineral Sands

• Mineral sands (e.g. titanium) present in Bangladesh, may be present in

Myanmar

• Prospecting since 2010, and tests underway in early 2016 in

Rathedaung/Ahngumaw village; exploration also in Maungdaw

• Chinese and Luxembourg-registered companies mentioned in media

Shwe Gas Project

14

Key Issues

• Ongoing disputes over compensation for land particularly concerning pipeline projects.

• Lack of consultation and engagement with communities, grievance mechanism

• Lack of job opportunities for the locals, local benefits

• Rakhine National Party demands for 50% revenue sharing

• Impact on artisanal oil wells

• Myanmar is not buying all its allocation of gas through the pipeline

• As of April 2015 only 200 million cubic metres taken p.a.; quota is 2 billion)

• Scope for more offtake for electricity generation via 4 gas distribution stations in Kyaukpyu, Yenangyaung, Mandalay and Taungtha.

2000

Korea’s Daewoo started

offshore drilling on block A-1

Offshore gas production near Kyaukphyu. Currently produces over 500 million cubic feet per day (MMCFD) and exports 80% of its

production to China via the South East Asia Gas Pipeline (SEAGP), with the remainder for domestic use

2004

Region discovered 4.5 trillion

cubic feet of gas reserves 2008

Myanmar and China sign agreements

to build oil and gas pipelines2013

Gas pipeline became operational from Kyaukphyu

to China and exports 400 MMCFD to China

Status of offshore blocks

Block Company

A-1/A-3 Daewoo (with ONGC Videsh Ltd., GAIL, Korea Gas Corporation): production

(Shwe Gas, 4.5 trillion cu ft)

AD-7 Daewoo 60%/ Woodside 40% Exploration successful exploration well 2016

(Thalin 1A)

A-6 Woodside (40%); Total (40%); MPRL (20%) – successful exploration well

2015 (Shwe Yee Htun)

AD-1,6, 8 CNPC/Chinnery: no info – relinquished?

A-4, A-7 Shell (45%) + Woodside (45%) + MPRL (10%): exploration

AD-2 Shell (55%) + Woodside (45%): Exploration

A-5 Chevron UNOCAL (99%) + Royal Marine Engineering (1%): exploration

AD-3 Ophir Energy Plc (95%) + Parami Energy Development; Exploration

AD-9 Shell Myanmar Energy(Pte)Ltd + MOECO: Exploration

AD-10 Statoil (50%) + Conoco Phillips (50% tbc)

AD-11 Shell (54%), Petronas (36%) + MOECO (10%): exploration

AD-12, AD-04 not allocated in 2013/2014 bidding round

Status of offshore blocks

• Main players in offshore Rakhine are Daewoo, Woodside and Shell

• Daewoo Blocks A1/3 are the only ones in production• All offshore Rakhine blocks who undertook Initial

Environmental Examinations for seismic surveys in 2015/2016 disclosed them

• Most blocks in Exploration phase have conducted seismic surveys to obtain geological data

• In early 2016 Woodside declared success with:• Thalin-1A in AD7 block – 836metres depth• Shwe Yee Htun in A6 (off Ayeyarwaddy Region)

• Woodside expects to drill four further exploratory wells in 2017 subject to permits (e.g. EIA)

• Company decisions to invest in production will depend on commercial viability which includes issues around tax.

• New production unlikely for a decade

Blocks in which Woodside has an interest

Miscellaneous issues

• Potential interaction between refugee/migrant boats and offshore operations including seismic boats

• UNHCR and operators discussion initiated by MCRB.

• Some operators have adopted code of conduct

• Most operations are supplied out of Thailand (Ranong), Singapore, and Thaketa (Yangon). Government seeking

investment of Offshore supply base:

• 52 companies responded to MOGE request for Expression of Interest (EoI) in 2015, but no clear

scope/criteria meant further consideration was not possible

• Roland Berger consultants now involved in re-tender

• Location(s)?

• Kyaukphyu?

• Rival locations include Ngayokekaung (Ayeyarwady) and in southern Myanmar

• Many issues – legal and strategy – to be resolved, tender status unknown

• Economic and development implications of offshore gas were not originally included in Rakhine Socio-

economic Development Plan

• Opportunity for a Partnerships for Development approach (next 2 slides)?

17

Opportunity to undertake ‘Partnerships for

development’ (PfD) approach to gas in Rakhine?

Multistakeholder analysis, dialogue and planning process, previously

undertaken for mining in many countries; also gas in Tanzania

Long lead time for enablers such as local content, skills development); this is

a critical time for the Myanmar national and Rakhine government, the private

sector, and other key stakeholders (e.g., local communities in resource-rich

regions) to develop a joint plan for the sector, from exploration to economic

diversification

How can this be done in a practical way?:

1. Analysis – provides evidence in a standardized way, of the extractive

sector’s full economic and social impacts – positive and negative,

quantitative and qualitative, national and local, and the existing sector

governance framework

2. Dialogue – stakeholders (government, companies, religious leaders,

community representatives) come together to critique the draft evidence.

Then to prioritize opportunities to catalyze improved local and national

development outcomes

3. Action Planning - collaborative actions to tackle priority areas identified

(e.g. local content, infrastructure, revenue management, etc.)18

19

0

1

2

3

4

5

6

Year-10

Year-5

Year0

Year5

Year10

Year15

Year20

Year25

Year30

Final year of

construction

0

1

2

Year -10 Year -5 Year 0 Year 5 Year 10 Year 15 Year 20 Year 25 Year 30

Government profit share Royalties CIT & WHT (BG & TPDC)Annual charges Personal income tax CIT (local contractors)

Production and other data/forecasts is obtained from each operator (on confidential basis) and then pooled to avoid commercial concerns.

This is then translated into potential impacts on investment, government revenues, current account, employment requirements, etc. This fact base can provide an important discussion starter on an action plan (e.g., how many workers to be trained; how to manage current account shock, etc).

PfD methodology “pools” forecasts from companies and

translates it into investment, job and tax implications

Investment (USD billions)

Tourism

20

Tourism Destinations in Rakhine State

Major/Existing destinations

Mrauk U – Ancient city with hundreds of temples and pagodas. One of the most important sites in Rakhine state with stone carving, exquisite bronze Buddha and glazed tiles from the 8th, 15th and 16th century of the Arakan Kingdom. Potential World Heritage Site?

Ngapali – Myanmar’s premier beach destination. Located on the Bay of Bengal, its main features are an idyllic stretch of white sand and palm tree-lined coast, with a number of resorts spread out next to traditional fishing villages. MCRB held a multistakeholder workshop in Ngapali in May 2016. (around 90,000 foreign visitors p.a.)

Minor destinations

Kyeintali and Gwa – Beaches south of Ngapali. Potential to develop as new beach destinations. SST Tourism is organising ecotourism packages

Kyaukphyu – Location of the new Special Economic Zone, and starting point for the pipeline to China. Kyaukphyu also has beaches and offshore islands.

Sittwe – A transit stop for tourists going to Mrauk Oo and a main business hub for the Rakhine state

Legend

1

2

3

4

5

1

2

3

4

5

Mrauk U

Ngapali

Kyeintali and Gwa

Kyaukphyu

Sittwe

1

2

3

4

521

Tourism in Rakhine - SWOT

Strengths/Opportunities

Ngapali - ‘Unspoilt’ beach with airport – high end tourism

Mrauk U - Cultural heritage

Weaknesses/Threats

Access (cost, distance, travel time)

Negative travel advice due to security:

‘The Foreign and Commonwealth Office (FCO) advise against all but

essential travel to Rakhine State except the southern townships of

Kyaukpyu, Ramree, Munaung, Toungup, Thandwe (including the tourist

resort of Ngapali) and Gwa’. (Some countries advise against all

destinations in Rakhine State)

Poor protection of main destinations

Ngapali - sand-mining, possible high rise, waste

Mrauk Oo – poor ‘restoration’, encroachment by infrastructure 22

• Tourism is one of six strands in

Rakhine Socio-Economic

Development Plan

• Vision: “To provide employment

opportunities, increase and

preserve the natural and cultural

heritage in line with the Myanmar

Tourism Plan and Responsible

Tourism Policy”

• MCRB provided TA to the draft

plan’s content on tourism

Issues for Tourism in Ngapali

Rakhine/Bamar tension• Most hotel owners and many managers are ‘outsiders’ from

Yangon and elsewhere.

Community Concerns

• Beach access, for public and fishing

• Land grabs by military and hotels

• Lack of involvement of communities in decision-making

23

Planning• Waste, water, building height (high rise vs low rise –

Ngapali’s USP), permitting, safety

• Need a Destination Management plan, and Destination

Management Organisation

Environmental

concerns

• Sand mining

• Cyanide and dynamite fishing

• Waste management

Community Based Tourism in Rakhine?

24

• Realism is needed about Community-Based Tourism (CBT)

• For the timebeing, there will be no significant market for CBT (international or domestic) in Rakhine State,

other than close to the two main destinations, Ngapali and Mrauk U.

• Priority should therefore be protection, destination management and marketing of Ngapali (and nearby

beaches) and Mrauk-U, which will bring more visitors in. These can act as bases for developing CBT nearby

(e.g. daytrips) as well as an outlet for marketing local handicrafts and products

Founders:

Current core funders:

• UK DFID

• DANIDA

• Norway

• Switzerland

• Netherlands

• Ireland

www.myanmar-responsiblebusiness.org

15 Shan Yeiktha Street, Sanchaung, Yangon

Tel/Fax: 01 510069

www.mcrb.org.mm

myanmar.responsible.business