Mandalay Capital Research

June 18, 2014

Myanmar Power Sector

Inviting Investors as Demand Surging

Changing industrial landscape. Myanmar faces serious power supply shortage for both industrial and Ingyin Hla Myint
residential needs, and is in the process of adapting a new energy policy to meet surging demand in Research Analyst
virtually every sector. In 2012, the Asian Development Bank conducted a sector-wide assessment and ingyin.hm@mandalayc.com
hence set forth development initiatives across the industry landscape. Following this, changes have
occurred in the recent years including governmental planning and forecasting of the industry, policy
adjusting favorable to foreign investments, international financing and strategic industrial restructuring
accorded with the Asian Development Bank and development institutions alike.
Supply shortage and growing demand. Power is largely undersupplied in Myanmar, with less than 30% of
the 60mn population connected to the national grid. The coverage is concentrated in urban and peri-
urban areas accounting for over 80% of the total power supply in the country. Whereas Yangon tops the
electricity access rate at 67% followed by other metropolitan areas – Naypyitaw at 54%, Kayar at 37% and
Mandalay at 31%, the number is significantly lower in rural areas at 16%, as of 2011. In addition to low
electrification rate, per capita power consumption rate at over 140 kWh is the lowest in Southeast Asia.
Off-grid power supplies as well as alternative fuel sources such as wood, gas and crude oil therefore fulfil
remaining demand requisites delivering 75% of the country’s total energy consumption.
Installed capacity and power generation. Current industry output is at over 10,000 GWh per annum from
the industry’s combined installed capacity of 3,800 MW. Although power generation and installed
capacity have increased slightly over the past two years, production capacity underperforms by 40%
lower than installed capacity according to the ADB’s estimate. Major drawbacks in power generation are
largely attributed by low maintenance capacity and lack of additional infrastructure investments.
Although the Ministry of Electric Power recently raised tariffs, it continues subsidizing power supply from
the national grid.
Sector development and tenders. The Government has been directing several different tenders to
develop IPP and JV projects across the country including gas-fired and coal-fired power plants, off-grid
network installations, expansions and constructions of transmission and distribution lines. Some of the
projects have received grants and loans from international financial institutions and other development
partners.
In the past, the fixed unit pricing had barred the private sector from investments due to significantly
higher costs of production. At present, as the Government remains the exclusive purchaser of all
domestic electricity and private sector investments are a core strategy of the new energy policy, tender
processes taking place are favourable towards the manufacturers with lowest price offerings.
International financing. The World Bank has pledged US$1bn development assistance for generation,
transmission and distribution as part of achieving 100% electrification by 2030, and its subsidiary IFC is
also considering advising and financing the privatization of the Yangon Electricity Supply Board that is in
charge of distribution power to Yangon. The ADB has provided a total of US$87mn for the energy sector
development including a US$60mn loan in 2013 for the Power Distribution Improvement Project and a
US$150mn loan under consideration for the Expansion of Power Transmission and Distribution Project.
The ADB will further invest US$580mn from now to 2016 in power and other infrastructure projects.
Adapting the new energy policy, the Myanmar Government is targeting to raise its per capita power
consumption to 282 kWh by 2015-2016, 493 kWh by 2020-2021, and 854 kWh by 2025-2026. Achieving
the new energy goal will be strongly reinforced by public and private joint ventures in generation,
transmission and distribution as well as assistance aids and low-interest financing from international
financial institutions. Going forward, changes in the power industry are necessary and will benefit
ongoing investments and industrializations.
Ingyin Hla Myint Mandalay Capital Research
ingyin.hm@mandalayc.com June 18, 2014

Power Industry Overview

DEMAND AND SUPPLY
Myanmar’s power industry is largely undersupplied, with less than 30% of the 60mn population
connected to the national grid and the coverage is concentrated in urban and peri-urban areas
accounting for over 80% of the total power supply in the country. This necessitates the general
populace’s reliance on alternative energy source from traditional biomass (particularly fuel
wood, gas and crude oil), which comprises 75% of total energy consumption, according to an
energy assessment of the country by the Asian Development Bank (ADB). The ADB also calculates
that in order to meet today’s demand, Myanmar’s power production would have to develop by
15% annually for five years.

In order to meet production costs and as part of adapting a new energy policy, the Government
recently introduced progressive prices for residential and commercial power consumptions as
follows:

 forhousehold consumption, from fixed MMK35 to MMK35 up to 100 kW, MMK40 up to

200 units, and MMK50 for more than 200 units
 for commercial consumption, from fixed MMK75 to MMK75 up to 500 units, and
MMK150 for greater than 500 units

The new pricing does not impact off-grid power supply although the charges are already
significantly higher than the national grid depending on the cost of power generation from
MMK100 to MMK300 by kWh.

POWER GENERATION
The power generation industry is largely state-controlled and heavily dependent on hydropower.
During FY2010 and FY2012, between 8,500 GWh and 10,000 GWh output was generated
annually via hydel (67%-72%), gas (20%-25%), coal-fired (7%-8%) and diesel (<1%) according to
the Myanmar Central Statistical Organization. Although power output has slightly increased year
on year, the per capita power consumption rate at over 140 kWhis very low by peer comparison
and consumption needs are chiefly to be met.

Power Generation and Consumption by Year

Total Consumption Total Generation Installed Capacity
(GWh) (GWh) (MW)
2007-2008 4,438 6,398 1,717
2008-2009 4,701 6,622 1,848
2009-2010 4,993 6,964 2,544
2010-2011 6,312 8,625 3,413*
2011-2012e 7,888 10,424 3,413
2012-2013e 8,450 10,965 3,852
2013-2014e - - 3,896
Source: Central Statistical Organization; e=estimate from Myanma Electric Power Enterprise
* Total installed capacity as reported In the 2010-2011 statistical yearbook

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Ingyin Hla Myint Mandalay Capital Research
ingyin.hm@mandalayc.com June 18, 2014

Higher costs of production per kW (from MMK80 to MMK250, gas-fired being lowest and diesel,
highest) will require the Government resume subsidizing the sector despite the hike in unit
charges. According to Frost and Sullivan, the Ministry of Electric Power estimates the annual
subsidy to reach MMK185bn (approx. US$185mn). Heavy subsidizing has in turn depleted the
ministerial budget for maintenance and controlled prices have deincentivized private sector
investment. Subsequently, existing power plants experience frequent breakdowns contributing
to even lower production in addition to the preliminarily low infrastructure foundation.
According to the ADB estimate, production capacity is currently underperforming by at least 40%
lower than installed capacity due to these factors.

Total Installed and Available Generation Capacity, MW

Source: Asian Development Bank, Myanmar Energy Selector Initial Assessment 2012

Hydropower
According to the data released by the Myanma Electric Power Enterprise in February 2013, there
are 20 hydropower stations with installed capacity of 2,780 MW. According to Frost & Sullivan
Report as of December 2013, 14 out of 20 stations are receiving investment from China and
Japan. China Power Investment Corp is also said to invest US$26bn to build 7 power stations
along the upper sections of the Ayeyarwaddy River with US$1.7bn loans from the EXIM Bank of
China and China Development Bank.

According to the ADB, the Ministry of Electric Power estimates that 100,000 MW of hydropower
could be extracted from the country’s four main rivers, and has identified 60 large-scale
hydropower projects of 45,293 MW shared capacity.

Gas-fired
Gas-fired power production has risen steadily over the past few years, occupying a quarter of the
industry output. At present, 60% of domestic natural gas supply is distributed to 10 gas-fired
power stations according to the ADB report in 2013. Myanmar has an estimated 7.8 tcf gas
reserve and through upcoming expanded production activities by recently selected offshore and
onshore oil & gas operators, domestic natural gas reserve is likely to surge, equipping new and
existing gas-fired power plants as well as reducing hydropower dependency.

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Ingyin Hla Myint Mandalay Capital Research
ingyin.hm@mandalayc.com June 18, 2014

As of February 2013, 14 gas-fired plants are located at 10 stations with combined installed
capacity of nearly 1,000 MW. A 500 MW gas-fired plant is also to be built by end-2014 to support
the development of the Thilawa Special Economic Zone. The World Bank is also supporting the
sector through its Electric Power Project to increase gas-fired power generation and has provided
US$140mn credit to upgrade 51 MW capacity of the existing Thaton power plant to 106 MW.

Coal-fired
Currently, only one coal-fired thermal power plant exists at Tigyit operating with installed
capacity of 120 MW. The ADB estimates annual coal production at 1.4 Mt as of 2011. Coal-fired
power generation is considered a mid-term solution to the country’s power shortage and the
Government has expressed to be considering building two coal-fired power plants near the
Thilawa Zone at 1,200 MW each.

TRANSMISSION & DISTRIBUTION

There are no private transmission and distribution operators. While the Government buys all
domestically produced electricity, the Myanma Electric Power Enterprise transmits it throughout
the national grid. The Yangon Electricity Supply Board then supplies power to Yangon and the
Electricity Supply Enterprise, to the rest of the country including off-grid generation and
distribution.

Similar to power generation, both transmission and distribution network and their substations
also suffer in capacity from lack of infrastructure investment and maintenance causing
dissipationup to 25%. The Ministry of Electric Power has planned to develop a 500 kV
transmission line by 2016 linking to existing 230 kV, 132 kV and 66 kV lines over 9,700 km.
Distribution network comprised of 33 kV, 11 kV, and 6.6 kV over 10,000 km will also be
significantly expanded.

FOREIGN INVESTMENT
Nonetheless, cumulative foreign investment in Myanmar is the highest in the power sector,
reaching aggregate USS19.3bn, accounting for over 40% of the country’s foreign investment
since 1990. Up until 2013, investment from China was largest in the sector and mostly comprised
of hydropower.

Foreign Investment in the Power Sector

FY Country # Enterprise US$ mn MMK mn
2005 Thailand 1 6,030.00 36,180.00
2006 China 1 281.22 1,687.33
2010 China 2 8,218.52 49,311.12
2011 China 1 4,343.98 -
2012 China 1 364.20 -
2013 - 1 46.51 -
TOTAL 19,284.43
Source: Central Statistical Organization

Recently IPPs and suppliers including General Electric,around the world have arrived in Myanmar
and are operating various projects.

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Ingyin Hla Myint Mandalay Capital Research
ingyin.hm@mandalayc.com June 18, 2014

Recent Investors

 Toyo-Thai has agreed to the development of a gas-fired power plant of 120 MW capacity,
located in Yangon. For the project, it will receive US$100mn credits from the EXIM Bank of
Thailand.
 UPP Holdings of Singapore will also operate a 52 MW gas-fired power project in Yangon
with an estimated cost of US$46.5mn. The company has teamed up with a local supplier
MyanShwePyi Tractors.
 APR Energy from the US has also won a tender as the first US-based power firm for the
construction of a 100 MW gas-fired power plant in Kyaukse, partnering with the United
Overseas Bank of Singapore. The plant will provide electricity to more than 6 mn people.
 As a supplier, Asiatech Energy from Singapore will construct a 230 MW gas-fired power
plant in Mawlamyaing contracted by a local group Myanmar Lighting IPP Co. For the project
of over US$170mn estimated cost and with the outreach aim of 5 mn people, Asiatech will
receive some financing from the United Overseas Bank.
 Navigat’s subsidiary Maxpower of Indonesia signed a power purchasing agreement to build
a 50 MW gas-fired power plant in Yangon, estimated to cost US$35mn.

INTERNATIONAL FINANCINGS
The World Bank has pledged US$1bn development assistance for generation, transmission and
distribution as part of achieving 100% electrification by 2030, and its subsidiary the IFC is also
under consideration for advising and financing of the privatization of the Yangon Electricity
Supply Board that is in charge of distribution power to Yangon.

The ADB has provided a total of US$87mn for the energy sector development including a
US$60mn loan in 2013 for the Power Distribution Improvement Project, in order to increase
distribution efficiency by 4% in 16 townships. It has also signed off a US$2mn project to provide
renewable energy to 25 off-grid villages located. It is at present considering a US$150mn loan for
expansion of the transmission and distribution from the supply sources to Yangon. From now to
2016, the ADB will further invest US$580mn in power and other infrastructure projects.

JICA is also providing a total of JPY34bn (approx. US$292mn) in an overseas development

assistance loan for upgrading existing power facilities and developing new ones at the Thilawa
Special Economic Zone.

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Ingyin Hla Myint Mandalay Capital Research
ingyin.hm@mandalayc.com June 18, 2014

Contacts

Research

Sardor Koshnazarov Managing Director sardor.koshnazarov@silkroadfin.com

Ingyin Hla Myint Research Analyst ingyin.hm@mandalayc.com

research@mandalayc.com

Address:

MYANMAR
10/A, KanbawzaAvenue
Golden Valley 1st Qtr., Bahan T/S
Yangon, Myanmar
Tel: +951539590
www.mandalayc.com
research@mandalayc.com

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