There has been a recent spate of news reports on the granting of an MIC approval to invest in an Offshore Supply Base (OSB) in Myanmar. We see two officially announced approvals located in close proximity to each other in the Ayeyarwady Region. Then there is a false report of an OSB in Mon State.
Having written extensively on the need and importance of this key piece of infrastructure to support the offshore oil and gas developments, this is welcome news that the MIC and government are now taking the issue seriously and getting a move on.
I recall addressing a summit in Yangon in 2014 warning that to have a successful offshore oil and gas sector you need to have a local supply base that creates jobs and preserves supply chain value within the state and union economy. However, I have also warned that the process of OSB approval/design / build needs to be carefully considered in order to ensure that a Myanmar solution is found and there is a functional fit to meet offshore operators’ needs.
As noted in previous articles on infrastructure and the OSB in particular, there have been a number of false starts by MOGE and government. These false starts have created confusion and chaos in this space.
It has also driven scepticism as to whether there is a comprehensive understanding of what is needed in a supply base and how best to deliver this key piece of infrastructure. An example is MOGE in November 2015 calling for expressions of interest from the market without a scope of works being given. They received 52 EOIs. With no criteria on which to evaluate the EOIs, MOGE has sought the assistance of Roland Berger in developing a scope and managing the tender process going forward. Discussions are ongoing and will no doubt be further confused by the recent MIC approvals. From an outsider perspective this raises the question as to whether there is in fact coherent and coordinated approach by the state to ensure delivery of infrastructure.
Adding fuel to the fire is the speed at which local companies have been granted approval. Questions that are raised is the ability / capability / criteria by which the local MIC applications were dealt with. Was it on the basis of local land ownership only? If so, this raises very serious questions as to the viability of these two approvals.
In the first instance, an OSB requires significant funds to build, with a lead time of three years before revenue generation to pay off debt. The project would need $50m in the initial stages, with at least $20m needed just to get the land cleared and in a suitable build condition. If a foreign entity loans them the finance in return for a long lease, this changes the basis upon which approval was granted and a new MIC approval would then be required. This would put investor funds at risk as well as raise the sovereign risk of Myanmar. If I have misunderstood the process and in fact this lease back arrangement is allowed, this sets a poor precedent and model for this type of investment. This model, as used in the likes of Africa, normally results in the proliferation of dummy or front companies with the concomitant increase in corrupt practice. This does not instill confidence in those foreigners wishing to invest in Myanmar.
In the second instance, did the approvals consider the physical constraints and location of the proposed sites? From an HSE perspective and international offshore operator perspective needs to be within 60 minutes by road to an operational airport for reasons of: evacuation, personnel transportation, as well as within 30 minutes by road to catered accommodation for at least 60 persons. Both sites appear not to meet this criteria.
Furthermore an OSB needs an integrated transport services network connected by road/rail/air to the sea. This is needed to ensure that you can manage and control truck marshalling areas, cargo consolidation space, and logistics for road and air freight. For this one would need approximately 20 – 25 ha of developable land that has good connectivity with a transport network. Again, this looks like it is missing with regards to the two locations that have poor infrastructure support as well available land being too small to accommodate supply base development.
I will not go into the other issues that can be raised, these will be discussed in an upcoming briefing session that I will be doing in Yangon, but the process used in granting MIC approval for an OSB suggests that Myanmar has not learnt from previous missteps. This does not give confidence to foreign investors at a time when the country needs an increase in foreign investment. Hopefully the warning sounded in March 2015 does not come to pass, in which I warned of the real possibility that undue consideration to process normally has a thoroughbred horse in mind, but a camel is the outcome.