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

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

1. Construction sector update

The High-rise Inspection Committee of the Yangon City Development Committee (YCDC) has backed down after requiring drastic changes to be made to 12 high-rise buildings being developed. The YCDC announced on 21 August 2016 that its earlier decision (which included requirements to knock down floors already built, as further reported on by us in July 2016, has been revoked by Yangon Chief Minister U Phyo Min Thein.

This reversal of YCDC’s earlier position follows wide criticism from the affected developers and the business community that the government’s review would have an adverse effect on international investment and local livelihoods, as well as complaints that the review process had not been transparent enough.

Affected developers have been informed that the suspensions are withdrawn. However, while none of the 12 developers will have to knock down floors they have already built, they will be required to complete their projects in accordance with certain conditions they have agreed with the Chief Minister. Such conditions have not been made public.

2. Central Bank of Myanmar (CBM) provides guidance on procedure for approval of offshore loans

The CBM has in August published an announcement on its website providing guidance  on the procedure to apply for an offshore loan. While most of the information was not new, it provided further insight into the CBM’s criteria and bases for evaluation when reviewing an offshore loan application.

Notably, the CBM’s criteria includes, amongst others, the following:
• whether the applicant has brought in minimum of equity or capital of US$500,000 to the country for investment;
• whether the debt to equity ratio of the applicant is within the maximum range of 3:1 to 4:1;
• if the applicant has an MIC Permit, if it has brought in at least 80% of the equity which was mentioned in its MIC Permit;
• whether the applicant received regular foreign currency income in accordance with the Foreign Exchange Management Law and Regulations; and
• if the applicant does not receive regular foreign currency income, whether or not it has the capability for repaying the loan and has a plan to deal with the fluctuation of the exchange rate.

3. Update on foreign involvement in trading and trading sector liberalisation

Japanese retail conglomerate Aeon has established a joint venture, Aeon Orange Co., Ltd. (Aeon Orange), together with a local partner, Creation Myanmar Group of Companies (CMGC). Aeon Orange, which has received US$8.1 million in funding largely provided by Aeon, has commenced the operation of 14 existing supermarkets it acquired from a CMGC affiliate, and plans to open a new store within a year. Aeon is one of the noticeable entrants in the retail sector in recent times. However, with the Ministry of Commerce still restricting foreign investors from owning a general retail business, there is still some way to go before foreign retailers can fully establish themselves in Myanmar.

The Ministry of Commerce (MOC) is also continuing to relax restrictions on trade. Pursuant to its notification 62/2016 (16 August 2016), the MOC is allowing the export of the following:
• flower sesame oil;
• mustard seeds and mustard oil;
• sunflower seeds and sunflower oil;
• residue of groundnuts, sesame, cotton seeds, rice barn, etc.; and
• particles of dried prawn shell.

The MOC’s relaxation of restrictions on foreign companies trading in construction goods was also reported in our July postcard.

In addition, Myanmar customs officials have reportedly stated that a new automated customs clearance system, the Myanmar Automated Cargo Clearance System (MACCS), will be fully operational in Yangon by November. The implementation of the MACCS commences this month, and is intended to expedite the flow of goods through Myanmar’s key ports through the automation of clearance processes.

4. Update on Myitsone dam and hydropower sector

The Myanmar government announced on 12 August 2016 that it will form a 20-member commission to review Myanmar’s hydropower projects. The commission will assess the likely benefits for Myanmar citizens and recommendations on whether such projects should proceed. It is envisaged that the commission will also review the Myitsone dam project, a controversial Chinese project in Kachin state which has been suspended since 2011. The commission’s first report to the president is due on November 11.

The Myitsone dam project was also a major subject of discussion during Daw Aung Sang Suu Kyi’s trip to the People’s Republic of China (PRC) earlier this month. Chinese president Xi Jinping called for collaboration between Myanmar and the PRC for the purposes of ensuring the smooth operation of existing large Chinese projects in Myanmar. Daw Aung Sang Suu Kyi reportedly agreed to work together to resolve the issue of the stalled Myitsone Dam project, though she did not commit to restarting the project.

5. Update on Panglong peace process

The Myanmar government held the 21st Century Panglong Ethnic Conference on 31 August 2016. The event aims to gather all ethnic armed groups nationwide to discuss the termination of ethnic conflict and the establishment of a federal state, as well as the development of a unified federal union. The framework for the conference is expected to build upon the political dialogue established by the previous government.

In addition to the eight ethnic armed groups which signed the Nationwide Ceasefire Accord (NCA) on 15 October 2015, non-signatory armed groups represented by the United Nationalities Federal Council (UNFC)'s Delegation for Political Negotiation (DPN) have also decided to attend the event, further to an emergency meeting which reassessed the current peace process and the country's political status.

6. Parliamentary approval of financial sector loan from World Bank

The Pyidaungsu Hluttaw has voted to approve a US$100 million loan from the World Bank to the Myanmar government. According to a representative for the World Bank, the project is aimed at expanding access to finance in Myanmar, as well as “improving the competitiveness of the banking sector through state-owned bank reform, upgrading the legal, regulatory and supervisory framework, and modernising financial infrastructure”.

The loan is for a term of 38 years, and while it is interest-free, the government will pay an annual service charge of 0.75 percent after a six-year grace period. It is envisaged that the loan will be split as follows:
• US$25 million of the loan will be allocated to the CBM, which will use the loan for (a) an accounting and finance training school, (b) IT and capacity building, (c) building staff capacity and (d) upgrading payment systems and financial infrastructure.
• The remaining US$75 million of the loan will be allocated to the Ministry of Planning and Finance, out of which (a) US$15 million will be invested by the ministry into financial sector development, and (b) US$60 million will be received by the ministry itself. According to Planning and Finance Deputy Minister U Maung Maung Win, the loan will afford the ministry relief from its budget deficit. Some of the funds earmarked for being invested in the private sector include developing a legal framework for the insurance and micro-finance sectors.

7. Spectrum tender for 2600 megahertz (MHz) band

The date for a long-awaited auction for more broadband spectrum has been announced. Initially planned for March 2016 but cancelled by the previous government, the auction will take place on 17 October 2016 and will allow telecoms companies to bid for a 40 MHz portion of the 2600MHz band. The auction will offer six separate 20MHz slices in three regions and bidders cannot win more than 20MHz in each region.

The Ministry of Transport and Communications recently released the list of the 22 companies that submitted expressions of interests (EOIs) for the auction, as well as the list of 20 potential bidders shortlisted from the EOI applicants. Notably, the potential bidders include Telenor Myanmar and the state-owned Myanma Posts and Telecommunication; whereas Ooredoo did not apply for an EOI as it is reportedly waiting for a future tender of a lower band.

Potential bidders are still required to fulfil certain criteria, including the furnishing of a US$500,000 deposit, in order to be shortlisted as qualified bidders. It is anticipated that the list of qualified bidders will be announced in late September 2016.

8. Update on tender for 300 megawatt (MW) rental power plant

The Ministry of Electricity and Energy has reportedly received six tender applications for the construction of a 300 MW private rental power plant in the Yangon region. The applicants comprised a range of companies or joint ventures based in the PRC, Hong Kong, Indonesia, Singapore, Myanmar, the United Kingdom and the United States:
• a consortium comprising Maxpower Myanmar Pte Ltd, LNG Link Pte Ltd, Consultant International Company Pte Ltd and SEPCO Electric Power Construction Corporation;
• Aggreko International Projects Ltd;
• China Energy Engineering and China ITS Holdings Co Ltd;
• Karpowership Asia Company Pte Ltd;
• a consortium comprising National Infrastructure Holdings Company, Ace Resources Group Pte Ltd, MCM Pacific Pte Ltd and APR Energy Plc; and
• CRRC Ltd and V Power Engineering Ltd.

The ministry will announce the winner of the bid on 9 September 2016.

9. Update on offshore supply base (OSB) projects

The Myanmar Oil and Gas Enterprise (MOGE) is reportedly making preparations to issue a tender this year for the building and operation of multiple OSBs in Myanmar. Currently the only OSB in Myanmar is owned by MOGE, and oil and gas companies in Myanmar primarily use bases in Thailand and Singapore instead.

See our July 2016 postcard for further details on the need for OSBs in Myanmar.

10. Update on company law reform

The new Myanmar Companies Law is expected to be submitted to parliament for approval in the upcoming months. In an joint opinion piece by U Aung Naing Oo (Director General, Directorate of Investment and Company Administration) and Mr Winfried Wicklein (Country director in Myanmar, Asian Development Bank) published in the Myanmar Times on 16 August 2016, it was emphasised that the new law is designed to streamline company management, strengthen governance and enforcement and make Myanmar firms more attractive to investors.

It is anticipated that the new Myanmar Companies Law, coupled with a new electronic companies registry and a new Investment Law, will aid the country in rapidly developing its business environment and strengthening its commercial footprint in the region.

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