Spotlight: Myanmar’s controversial oil and gas industry

12 November 2012 (Last Updated August 3rd, 2020 13:14)

Western sanctions on oil and gas companies working in Myanmar have been removed and a bidding war has begun for its vast reserves, despite accusations of corruption and humans rights abuses circling the country's national oil company. Heidi Vella shines the spotlight on Myanmar's controversial offshore oil and gas industry which, for better or worse, is on the verge of rapid expansion.

Spotlight: Myanmar’s controversial oil and gas industry

Myanmar

Myanmar ended 15 years of military rule in 2010 with an election that was seen internationally as a step towards political reform and democracy. This prompted the US and other Western countries to this year lift 15 years of sanctions forbidding companies to engage in economic activity in Myanmar, essentially opening up its rich oil and gas reserves for business.

The military junta that previously ran Myanmar, formerly known as Burma, was constantly accused of corruption and breaching human rights, including forcing opposition party leader Aung San Suu Kyi to be kept under house arrest for 15 years.

Some critics of the current government believe nothing has fundamentally changed, especially within Myanmar's state run oil and gas industry, which is accused by activist groups of being rife with corruption and responsible for carrying out human rights abuses, leaving many concerned that very few of the country's people will benefit from an open energy market.

Current projects, investments and income

Up until the sanctions were lifted, Myanmar's offshore oil and gas industry has been dominated primarily by Asian companies, most notably China, who purchase gas from the Shwe Gas offshore project run by South Korea's Daewoo. China are currently building a 1,800km pipeline from Kyauk Phyu in Arakan to Kunming, which will be active from next year, 2013.

"Critics of the current government believe nothing has fundamentally changed, especially within Myanmar's state run oil and gas industry."

Other significant offshore projects include the Yetagun gas field in the Gulf of Martaban, which contains reserves estimated at 3.2 trillion cubic feet of gas and is run by PTTEP, Thailand's national energy company, and the Yadana gas project in the Andaman Sea, which is estimated to contain more than 150 billion cubic metres of natural gas and is run by Total SA, PTTEP and Chevron.

According to a presentation published by Myanmar's national oil company, Myanmar Oil and Gas Enterprise (MOGE), last year it signed contracts with 14 foreign companies for 30 offshore blocks, with a further 22 blocks up for grabs. Countries currently interested in these blocks include ConocoPhillips, Hess Corp, Royal Dutch Shell, BP, BG Group and Australia's Woodside Petroleum.

Although a tremendously poor country, Myanmar's oil and gas industry is one of the oldest in the world and, besides allegations of atrocities, it apparently runs efficiently. The MOGE runs the industry on behalf of the Ministry of Energy and all international companies working in Myanmar must partner with the MOGE.

According to John McClenahan, who acted for the lenders financing MOGE participation in the Yutagan gas project and has, since 2006, been working for the sponsors on the Shwe Gas project, Myanmar's oil and gas industry is the most sophisticated sector in the country.

Is it too soon for Western investment?

Although Myanmar's Government, which is still headed by Thein Sein who also ran the former military junta, may be gaining the trust of international energy companies through its new reforms and legislations - it recently updated its Foreign Investment Law - there is much scepticism as to whether it is morally right for Western companies to invest in Myanmar and partner with the MOGE when it has been accused of corruption, displacing people along the Shwe Gas project and conducting human rights abuses.

"Myanmar's oil and gas industry is one of the oldest in the world and, besides allegations of atrocities, it apparently runs efficiently."

Jockai Khaing, who works for the Arakan Oil Watch, an independent, community-based NGO, says: "Oil and gas extraction activities in Burma lack revenue transparency standards, as well as protection laws for human rights and the environment.

"Under the former Than Shwe military regime, the people of Burma didn't know where the gas money was kept or how it was spent. The situation is still the same."

However, James Finch from DFDL Mekon Group, who has legally advised in Myanmar for 15 years, believes there has been an improvement: "The offshore contracting process has just changed over to an open-bidding process. The Ministry of Energy (MOE) is trying hard to set up procedures that will satisfy the world that the process is transparent."

Although the evidence seems point to the contrary; the MOE has not signed up to international transparency agreements, such as the EITI, and the country is also ranked third on the Corruption Perception Index. Also, Aung San Suu Kyi requested in June that Western countries not allow their companies to partner with the MOGE until it 'apply internationally recognised standards'.

It is not just transparency that is an issue. According to a report from the Ta'ang Students and Youth Organisation (TSYO), construction of the Shwe Gas project has resulted in land confiscation, forced labour, heightened drug use and security concerns for women and girls, in addition to fighting and displacement.

Oil and gas industry and local people

In response to claims that locals are vulnerable to losing their homes and communities along oil and gas construction routes, McClenahan, who has worked on the Shwe Gas project, says: "In the [legal] documentation we put in requirements for adequate compensation to be paid to land holders."

He says "that [it] was the responsibility of the Myanmar Government for the land holders to be adequately compensated."

Khaing is frustrated that local people may never benefit from this burgeoning industry.

"The MOGE runs the industry on behalf of the Ministry of Energy and international companies working in Myanmar must partner with it."

"If the situation in Burma's onshore and offshore oil and gas industry remains the same, so will major problems...Cronies and military companies will be the only groups to benefit from this industry, while local communities in the projects areas lose their livelihoods and suffer abuses, and the country as a whole deteriorates under the resource curse."

Khaing also says the AOW are concerned by offshore environmental factors, such as small fish species being killed and bigger fish moving territories, which is "compounded by the fact that there are not clear laws for protection or guidelines for who will take responsibility if an accident happens."

There is also the issue of exportation of natural resources. According to Revenue Watch, only a quarter of the population has access to electricity and the country meets only one-third of its crude oil demand and half of its natural gas needs, while exporting around 80% of the gas produced to neighboring countries, which it has been criticised for.

However, domestic demand is something the government says it plans to address with further oil and gas production. McClenahan says this could be a positve: "...this should hopefully promote the development of further infrastructure and in turn manufacturing agriculture job opportunities and so forth, so I think if they use their energy resources wisely the prospects are very, very good."

Current issues must be addressed

Myanmar's Government, international companies and their governments must address these accusations and ensure energy reserves benefit the country as a whole, as well as working on improving infrastructure and the banking system. McClenahan says there is a need for "vocational schools to teach basic trades."

Khaing goes further, saying as the government reforms, international companies need to do more: "Oil companies must demand laws and mechanisms to properly protect human rights and the environment, and ensure revenue transparency in Burma's oil and gas sector before they make their investment."

Looking back at history, oil and gas companies have never been entirely in favour of full transparency. However, there is a possibility that with the international spotlight now resting on Myanmar's oil and gas industry in itself, along with a planned visit from America's President Barack Obama, it may promote a move towards better practices and human rights, as well as its growing tourism industry which will further bring international attention on the country.

Main image courtesy of Arakan Oil Watch.


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