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BLP's Myanmar Postcard - Our top 10 picks for October 2016

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Summary: Welcome to the latest edition of BLP's monthly Myanmar update. We have distilled the top 10 news items into this 'speed read'. Please get in touch for more information.

1.US Sanctions Update

US President Barack Obama issued an executive order on 7 October 2016 which formally brought an end to the US Sanctions Regime in relation to Myanmar. The executive order followed the announcement by President Obama, made during State Counsellor Daw Aung San Suu Kyi’s visit to the US last month, that the US will lift the majority of the remaining sanctions. The removal of US Sanctions is a major development which could significantly improve the already vibrant investment landscape in Myanmar.

Following the issuance of the executive order, US persons are no longer prohibited from dealing with persons who were previously on the list of Specially Designated Nationals (SDN) pursuant to the Myanmar Sanctions Regime (“MSR”) and entities controlled by such SDN persons. Furthermore all property and interest in property blocked pursuant to the MSR are unblocked. One of the major obstacles for US investors have now been removed and these changes will widen the pool of potential investments and joint venture partners for US as well as non-US investors (subject to their internal compliance and policy requirements and guidance).

All OFAC administered restrictions under the MSR regarding banking or financial transactions with Myanmar are also no longer in effect. This could also facilitate flow of foreign capital into Myanmar as financial institutions will no longer have to be navigate restrictions and prohibitions imposed by MSR.

The US Treasury continues to maintain an SDN list of names and entities for Myanmar relating to their Foreign Narcotics Kingpin Sanctions Regulations and their North Korea Sanctions Regulations.

2.Update on the New Investment Law

Myanmar Investment Law 2016, which combines the previous Foreign Investment Law 2012 and Myanmar Citizens Law 2013 and enhances the approach to investment regulation, was enacted on 18 October 2016. Please refer to our September Postcard for an analysis of the law which will apply to just about all Myanmar investments. BLP is currently working with DICA and the IFC in drafting the rules and regulations needed to give effect to this reform and your comment and feedback on the new law would be welcome.

There have been great efforts to improve the investment climate in Myanmar and passing of the new Investment Law is a significant milestone. Myanmar has passed a number of key laws recently and the next focus will be the Myanmar Companies Law, expected quite soon. Members of BLP’s Yangon team are also centrally involved in this important reform, giving us the most in-depth knowledge of Myanmar corporate and investment law matters.

3.Construction Sector Update - lawsuit against YCDC

A Yangon high-rise building developer (U Kyaw Kyaw Naing) is planning to take legal action against YCDC for K.50 billion (U$39.9 million) after YCDC gave instructions to reduce the number of floors on a planned residential apartment block on Dhamma Thukha Kyaung Road in Hlaing Township. The developer received a permit-in-principle under the previous YCDC administration which allowed for 12 floors and basement, giving a capacity of 264 apartments.
However the current YCDC’s High-rise Committee gave instructions to make significant alterations to design and reduced 12 floors to seven floors. The overall effect is that only around 164 apartments can be built under the new design. It was reported that the developer intends to use amounts recovered from YCDC to cover losses and to compensate buyers who have already bought apartments.

Pre-sale of apartments is the most common form of financing which developers rely on. Myanmar has focused on modernisation of the financial sector and the improvement of real estate financing is crucial for this sector to fulfill its potential.

4.Second Stakeholder Form on Labour Law reforms and Institutional capabilities building

Myanmar, Denmark, Japan, the US, the European Union and the International Labour Organization (ILO) held the Second Stakeholder Forum on Labour Law reforms and Institutional Capabilities Building on 29 September 2016 to 30 September 2016 which BLP attended. The participants shared their views on priorities and challenges for the modernisation of Myanmar’s labour laws and practices and for the improvement of compliance with international labour standards, as well as on how to foster inclusive engagement with domestic and international stakeholders in the process. According to the Department of Labour Administration, Ministry of Labour and Immigration, the priorities are to reform Labour Organisation Law, Settlement of Labor Dispute Law and Employment Skill and Development Law. It was also announced that changes will be put in place so that the mandatory forms of contact will no longer be required in the future.

5.YSX Update

U Nyo Myint, senior managing director of KBZ Group Co. communicated to the press that KBZ Group is seeking to list its insurance arm (KBZ Insurance Co., Ltd) on the domestic bourse as early as next year. The insurance arm, has a paid-up capital of US$55 million and it was reported that the listed arm could have a market capitalisation of around US$500 million-US$750 million. First Myanmar Investment Co., Ltd, Myanmar Thilawa SEZ Holdings Public Ltd. and Myanmar Citizens Bank Ltd are currently listed on the YSX.

The KBZ Group is most well-known for its banking business as KBZ Bank is one of the largest lenders in Myanmar. KBZ Bank has recently also carried out overseas expansion opening a branch in Thailand and a representative office in Singapore. Other than banking and insurance, KBZ Group also has interests in other sectors such as aviation and tourism.

6.Oil and Gas Sector Update

Indonesia platform builder PT Gunanusa Utama Fabricators (PTG) has been awarded a second contract from Thailand’s PTTEP for Zawtika project offshore. It was reported that the value of the project (Lot 1) is about US$155 million and the project is expected to take 19 months to complete. Lot 2 of the project comprises 2 wellhead platforms, associated pipelines, and tie-ins. The project value is about US$150 million. Work on Lot 1 and 2 is expected to be carried out concurrently. The project completion date is in the second quarter of 2018.

The initial contract, awarded in September, comprised engineering, procurement, construction and installation (EPCI) of two offshore wellhead platforms, associated pipelines and tie-ins for Phase 1C of the Zawtika Development Project.

Oil and Gas remains one of the most attractive sectors in Myanmar and we are expecting to see further activities in the coming months. The Myanmar Oil and Gas Enterprise (MOGE) is preparing to issue a tender for building and operation of multiple offshore supply bases. Last September, MOGE also released an EoI seeking private sector cooperation in implementing bulk import and regasification of LNG.

7.Update on tender for 300 Megawatt Power Plant

According to the announcement from the Ministry of Electricity and Energy, a consortium of local and US firm has won a tender among the six companies which submitted bid to build a 300 megawatt Power Plant in Yangon. The winning consortium is made up of Myanmar companies National Infrastructure Holdings and MCM Pacific, and US companies APR Energy and Ace Resources Group.
The tender was issued in July for a five-year contract to supply 300MW power to Yangon (please refer to our August Postcard). Demand for electricity from Myanmar largest city is raising from 1050 MW in 2015 to 1250 MW in 2016. The winning group will build a 300MW power plant, of which with a new power distribution line projects should prevent frequent power failure.

8.Update on Yangon Seaport

The Yangon Region Government is focusing on a long-term project to turn Yangon into the next seaport city with the help of the Korea International Cooperation Agency (KOICA). The plan was part of the Region Government’s vision of making Yangon a seaport city. The government is still at the stage of conducting a feasibility study looking at suitable areas. The seaport would allow for the southern townships to transport cargo by ship into the city centre.

9.Rakhine Region News Update

On the morning of 9 October 2016, armed attacks were carried out on Maungdaw Township border guard police posts which resulted in the casualty of nine members of the Myanmar Police Force. Rakhine has seen tensions between its Buddhist and Muslim populations and the state has seen a number of episodes of violent outbreaks.

Union Minister Dr Pe Myint said that the government is still reviewing its findings on recent violent attacks in Rakhine State. The authorities are presently taking the responsibility of the security of the area. The government has formed 34-member central committee for fighting terrorism and plans are being drawn to quickly response to possible attacks to Myanmar.

10.Yangon clamps down on apartment renting to tourists

U Zaw Aye Maung, the military-appointed Region Minister for Immigration, stated that penalties will be imposed on Yangon landlords who rent rooms or apartments to foreign tourists. One of the reasons cited was that the government could not be held responsible for security of tourists who do not stay in hotels.

These restrictions on landlords are contained in secondary legislation under Immigration Act 1947. U Zaw Aye Maung admitted, however, that enforcing the long-ignored law will be a challenge given the size of Yangon and the rising number of foreign visitors.

It is also understood that regulations under the Myanmar Citizens Law 1982 has similar restrictions. The restrictions would not apply to foreigners holding business visas who are also permitted to rent houses and apartments.

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