executives around the globe rubbed their hands anticipating a new gold rush in
Myanmar when that formerly isolated country began opening up in 2011. They're
still eagerly waiting, but the fledgling democracy finally seems ready for
Before Myanmar, also known as Burma,
could fling open its energy reserves, it had to remake its government, overhaul the way it does
business -- no more opacity, bribes, and corruption -- and update its crumbling infrastructure.
"People assumed that once sanctions
were lifted it would be easy to go in," said Erin Murphy, a former State
Department official who started Inle Advisory Group, a consultancy focused on
Myanmar. Potential investors thought of it as an emerging market, when really it was much
less developed, she said.
International firms were so anxious to get back
into Myanmar ahead of a new investment boom that office rental prices in Yangon, or Rangoon, were higher than in New
York for a spell last year; exorbitant rates still spark scandal there today.
investments are inching upward after most international sanctions imposed on the military
junta in 1997 were lifted and the country prepares for its first, fully
democratic elections in more than two decades. (The military junta ignored the
results of the 1990 elections. The 2012 elections only offered opposition
parties a handful of seats in parliament.) Incoming investments rose from about $2 billion
before the political transition to $2.7 billion last year, showing that
Myanmar's efforts to make the country more appealing to international companies
by reforming its laws is slowly paying dividends.
For the energy sector, years of anticipation
came to fruition this spring when Myanmar finally awarded 20 blocks for
offshore oil and gas exploration to foreign firms, a landmark step.
Attracting more outside capital is crucial; and
not just to boost energy production and exports, which are a key source of
government revenue. In the energy sector especially, greater involvement by
foreign companies could actually help solidify Myanmar's nascent political
makeover as those enterprises demand more transparency, accountability, and
When Myanmar's military rulers began
liberalizing restrictive rules on labor unions and the media, freeing political
prisoners, and entering talks to end decades of armed conflict with ethnic
minorities in 2011, expectations soared that
international firms would scramble to invest in a country
that many considered akin to the next Vietnam.
For energy companies in particular, Myanmar is
ideally situated geographically to supply its fast-growing neighbors in
Southeast Asia. And Burma was one of the first countries to export oil, back in
the 1850s. For decades, Western firms such as Total and Unocal, later Chevron,
extracted natural gas from large offshore deposits in the sprawling
Yadana field off the southern
coast. The energy sector -- including oil, gas, and power generation -- accounted
for the bulk of foreign investment
flowing into the country. What's more, many oil firms believe Myanmar holds
even greater energy riches that simply haven't been explored because of decades of
sanctions and isolation.
Norway's Statoil, for example, joined forces
with ConocoPhillips and was awarded one offshore block earlier this year. Despite
all the challenges of doing business in Myanmar, and lingering uncertainty over the
political transition there, Statoil's motivation was clear. "This is a large and
virtually unexplored basin with a proven petroleum system and significant
potential upside," said Statoil spokesman Knut Rostad.
That unquantified potential drew almost 70
big international firms to the latest bidding round; 30 actually bid and 20 won rights to begin
exploration, including international majors such as Statoil, Shell, Total,
Chevron, BG, and Eni.
"In terms of oil and gas exploration,
this is really frontier exploration. There haven't been any wells drilled in
deep water, so this is really one of the last frontiers that we have seen
around the world, and that has recently been made available," said an
executive with one Western oil firm recently awarded blocks.
Actually tapping Myanmar's energy potential has
been a long, slow slog, which could be a good thing.
Four years after the elections that ushered in
an end to total military rule and the beginnings of Myanmar's opening, no
production contracts have been signed for those promising offshore blocks; and
no new gas fields have started producing. What's more, the foreign rush to
explore for oil and gas both onshore and offshore threatens to overwhelm the
small number of government officials overseeing the development of dozens of
big, complicated projects, potentially causing further delay.
There are other concerns dogging the pace of
resource development, especially the lack of data on just what oil and gas
resources are really out there and a narrow window of time to carry out
geological surveys on the blocks that were awarded. Furthermore, Myanmar's
growing appetite for domestic energy, such as natural gas for power generation,
raises fears that the government will increasingly make companies dedicate more
of what they produce to the less-profitable domestic market.
"Above ground factors have had a
significant impact on the pace of Myanmar's upstream development," said
Olivia Boyd, who covers Myanmar for energy consultancy IHS. The government
delayed awarding the offshore blocks, a process that began in 2012, until
earlier this year, largely to bring the whole process up to snuff for
international firms that face strict environmental and compliance rules.
For example, Myanmar introduced an industry-wide
standard contract to replace the old, individually negotiated, opaque ones. It
also undertook tougher environmental reviews. It also overhauled which
government ministries are in charge of energy contracts, making shady deals
less likely, and approved new legislation to tackle bribery and corruption.
Perhaps most importantly, it applied to join the Extractive Industries Transparency
Initiative, a global standard pushing more openness in resource development
around the world.
"Oil companies have demonstrated that they
are treading very carefully when it comes to investing in Myanmar and the
government, in turn, has been very active in seeking to address transparency
concerns," Boyd said.
U.S. Commerce Secretary Penny Pritzker opened a
new commercial office in Yangon this month, touting how American involvement
can accelerate Myanmar's reforms. "When our businesses make investments, they bring with them the
highest standards, including a commitment to corporate and social
responsibility," she said.
All this could go a long way toward helping Myanmar avoid the so-called
resource curse, when countries' abundant natural resources fuel corruption and
inequality and undermine democracy. Instead, Myanmar could "piggy-back on the more rigorous
standards of foreign partners,"
concluded Cullen Hendrix and Marcus Noland in a
recent Peterson Institute of International Economics study.
"It's kind of a gold rush, but with time
the boys leave, and the men stay," the Western oil executive said,
referring to how the right environment attracts the right kind of investors.
Jamila Trindle contributed to this article.
Paula Bronstein - AFP - Getty