Having planned to start the process in the first half of 2019, the government has delayed the international bidding round in order to get the new bill in place. 

“We are now expecting to call the next bidding round in January 2020, after the new terms are approved under the bill,” said U Zaw Aung, a retired director general at Oil and Gas Planning Department.

The Exploration, Prospecting, Development and Production of Petroleum Bill, commonly called the draft oil and gas law, is now published for public consultation.

Among the changes included in the new bill is adjusting the terms of Myanmar’s production sharing contracts (PSCs), as this is key to making investments in the country’s oil and gas sector more attractive for foreign investors, he said. 

“We need to create good opportunities for investors to attract them to our country because this is important to develop the oil and gas sector,” U Zaw Aung said. He added that in some other oil-producing countries, the government’s takes between 30 percent and 60pc of revenues generated compared to 80pc in Myanmar. 

Raising the level of oil and gas investments has never been more important for Myanmar, where local demand for energy has long surpassed supply. Even though Myanmar exports around US$3.4 billion worth of oil and gas to the likes of Thailand and China, it spends some $4.6 billion to import petrol, jet fuel and diesel. 

As The Myanmar Times reported, provisions of the draft law contain the possibility of changes to existing PSCs and the risk of companies losing title between exploration outcome and agreement on production plans. These have led to objections from the industry.

The bill also preserves the conflicting roles of the state-owned Myanma Oil and Gas Enterprise (MOGE), which acts as both a regulator and commercial partner. 

The relationship between the Petroleum Activities Supervision Central Committee, the ministry and MOGE and their respective authorities are not clearly defined under the law, while there is no clarity over how the bill will interact with the 2012 Environmental Conservation Law and other existing regulations.

The bill, expected before the end of the year, will also come at a time when energy consumption across the rest of the region is expected to be rising for the next 20 years. 

“This demand will raise the value of oil reserves in Asia and draw investments into the sector. Myanmar has lots of potentials to benefit from this as 70pc of our oil and gas fields are still unexplored,” said U Pyi Wa Tun, chief executive of Parami Energy, during a roundtable discussion on the bill recently.

“We should create opportunities for investors in the sector that will be sustainable for many years. If we don’t do it now, it will be too late and we will regret it,” he said. 

More investments expected

Earlier this month, U Thaung Tun, Union Minister for Investment and Foreign Economic Relations, said he is expecting to receive “a record number of investments in oil and gas next year, especially offshore.”

In Myanmar, the last international tender for oil and natural gas blocks was held in 2014, with 16 onshore and 20 offshore blocks awarded to investors for exploration and production work. The next round of international tenders is set for next year, and will likely include a total of 31 onshore and offshore blocks.

We are now expecting to call the next bidding round in January 2020, after the new terms are approved under the bill. – U Zaw Aung, Retired official

Given that the 2013-14 bidding round was successful without a law, industry consultants and experts argue that the proposed legislation is not a prerequisite for another bidding round.

“In adjusting the terms of the PSCs we have had to work with institutions like the World Bank and International Monetary Fund,” said U Zaw Aung, adding that industry tax rates and royalty fees have also been reviewed to be more favourable for investors. 

Under the current bill, foreign investors are expected to pay 12.5pc of the gross value of natural gas or oil extracted as royalties to the State, The Myanmar Times understands. Such charges have deterred investors and are weighing down the sector.

But the government is already starting to see rising interest in anticipation of the new bill, according to U Thaung Tun.

“Logically, investments will come for sure if the door is open and proper legislation is in place,” said U Aung Ko Ko, a local economist. 

Industry objections

The draft law, however, has been widely criticised by industry experts and investors. Some reckon the timeline for its approval before the end of the year is not quite feasible, given the need to substantially revise the bill. 

The Myanmar Oil and Gas Producers and Operators Club, for one, asked for the law to exempt existing contracts, for more clarification on the role of different regulatory bodies and clarity over terms and timeframes.

“The responsibility of levying taxes on the industry should be transferred to the Ministry of Planning and Finance [MOPF],” said U Ye Thein Oo, a member of the Myanmar Alliance of Transparency and Accountability. 

The MOPF does not work closely with the oil and gas industry and taxes due are calculated by MOGE after conducting an audit of the companies involved each quarter, U Zaw Aung explained.

Experts also said the bill should include more incentives to draw investors to the table, as exploration and production will now take place mostly offshore, in deeper and more dangerous waters. For example, gas was discovered at depths of 4820 metres at the Shwe Yee Htun-2 well in block A6, which is located about 100 kilometres away from Pathein in Ayeyarwady Region. 

As a whole though, the bill underscores the government’s efforts to improve the industry for potential investors. 

“Our country is poor and this law will help us a lot,” said U Myat Thu, president of the Yangon School of Political Science. Multiple factors should be taken into account, including measures to attract foreign investors, investment protection, benefits to local businesses and tax revenue to the government.

“The bill should be beneficial to all stakeholders involved,” he said.

Source: https://www.mmtimes.com/news/next-bidding-round-expected-january-retired-official-says.html