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Myanmar postcard - Our top picks for May 2017

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Summary: Welcome to the fifth edition of BLP's monthly Myanmar update in 2017. We have distilled the top news items into this first summary 'speed read' of the year.

1. Restricted Investment Notification update

The Myanmar Investment Commission ("MIC") has publicly announced that any foreign investors, including joint ventures with Myanmar citizens, who have invested in a restricted sector identified in Notification 15/2017 will be required pursuant to rule 227 of Myanmar Investment Rules (“MIR”)  to notify the MIC or the relevant State/Regional Committee Offices of such activity prior to 29 March 2019 (prescribed form of notification).This will affect existing foreign companies in Myanmar that are already operating without any MIC permit and are now caught by these reporting requirements. All investors who are now making new investments in a restricted sector must submit a notice of their investment within 3 months of commencing the implementation of the investment. 

Please read our analysis of the new restricted investment list in our April 2017 Myanmar postcard

2. Electricity prices to increase

The Ministry of Electricity and Energy (“MOEE”) has recently announced an intention to increase electricity prices. However, the MOEE has yet to consult stakeholders about these proposed pricing changes or set the new rates. The changes have been motivated by the Union government’s desire to remove the 330 billion kyat per annum subsidies that it provides to the national grid, which services approximately 40% of Myanmar’s population. The intention is that, if the subsidy is removed, the consequent saving can be applied towards expansion of the national grid and transmission/distribution lines so that the whole population is serviced by the national grid by 2030. The Union government previously tried to increase electricity prices in 2013 but abandoned the increases due to strong public opposition.

The new electricity prices are to be classified into separate business, household and industrial classes and will be determined by the usage, type and location of each end user. Currently, electricity rates are charged subject to usage at progressively increasing rates, although industrial users receive discounted rates when their usage exceeds 300,000 units.

3. New Deeds Registration Bill

On 6 May 2017, a new draft Registration Bill (“Bill”) was published in The Mirror Daily for public comment. Whilst approved by Cabinet, the Bill is yet to be passed and approved by the Union Parliament. Once passed, the Bill will be called the Registration Law and will replace the existing Registration Act, India Act XVI of 1908. The Bill provides that certain categories of instruments must be registered, including leases for a duration of greater than one year, and that other categories of instrument may be optionally registered.

We will circulate an unofficial English translation of the Bill in due course. 

4. New draft Myanmar Communications Regulatory Commission Law

The Myanmar Ministry of Transport and Communications has published a draft Myanmar Communications Regulatory Commission Law on its website (“Draft Law”). The Draft Law establishes the Myanmar Communications Regulatory Commission (“MCRC”), an independent regulator, and describes its powers, functions and duties. The Draft Law is the result of feedback from experts and industry stakeholders. The regulatory role which the MCRC is proposed to undertake was previously held by the Post and Telecommunications Department of the Ministry of Transport and Communications and the Draft Law explicitly provides for this transition of power.

Under the Draft Law, the MCRC would be responsible for issuing telecommunications licences, administering the frequency spectrum for operations, advising the Union government on telecommunications issues, assisting with competition issues, regulatory compliance and promoting equitable access to telecommunications services.

The unofficial English translation of the Draft Law.

5. Seven Ethnic States to draft own constitutions

The Union Peace Dialogue Joint Committee (“UPDJC”) meeting was held on 12 May 2017. At this meeting, the Union government accepted the self-government right of the ethnic states of Kachin, Karen, Arakan, Mon, Shan, Chin and Karenni (“Ethnic States”) for the first time.

The Ethnic States are now in principle permitted to write their own constitutions provided (i) that these do not conflict with the current Constitution of the Republic of the Union of Myanmar (2008) and (ii) that the Ethnic States still remain part of Myanmar. The intention is that any new constitutions will be the model for any future new Ethnic State constitutions. Where Ethnic State constitutions are drafted and approved, they will be capable of regulating the state legislative bodies, administrative bodies and courts which would no longer be subject to regulation by the Union government. We understand that a similar right will also be granted to 7 special administrative regions: Irrawaddy, Magwe, Mandalay, Pegu, Rangoon, Sagaing and Tenasserim.

It is reported that it was also confirmed and agreed at the UPDJC meeting that the Myanmar Army will continue to safeguard the “three main national causes”, namely (i) the non-disintegration of the Union, (ii) the non-disintegration of national solidarity and (iii) the perpetuation of sovereignty.

Almost all of the seven principles of the Federal Union (being, sovereignty, practice of sovereignty, equality, self-determination, federal Union principles and a multi-party democratic system) are being negotiated at the second round of the 21st Century Panglong Peace Conference which commenced on 24 May and was extended until 29 May 2017, beyond its originally planned four day duration. We will report on the outcomes in a future Postcard (although our initial understanding is that the extension of the conference was required due to difficulties with reaching consensus on the issue of non-cessation from the Union). The final principle of the relationship between religion and politics will be debated at a later date.

6. New Tourism Tax

The Myanmar Tourism Federation (“MTF”) has announced that it intends to impose a new tourism tax of USD 1 per person per night to fund the promotion of tourism in Myanmar. The announcement follows a meeting on 26 April with the Ministry of Hotels and Tourism (“MOHT”). We understand that the MTF, a public-private marketing body, had previously applied for USD 30 million of government funding but that the application was unsuccessful due to the Union Government’s foreign currency requirements and the decision of the Union Government to focus its funding on other sectors of the economy.

The new tourism tax, which is similar to that imposed in other ASEAN nations and will be automatically added to a guest’s bill, will apply to tourists as well as business travellers who stay at hotels or guest houses for up to 14 days and will likely be implemented by the end of the year once the relevant legislation has been approved by Parliament. It is predicted that the new tax could raise approximately USD 3 million per annum if all funds are passed through to the MTF.

7. EU-Myanmar IPA negotiations continue

The European Union-Myanmar Investment Protection Agreement (“IPA”) has entered its fifth round of negotiations, continuing a comprehensive process that commenced in 2014 and which is being undertaken in tandem with a sustainability impact assessment. The European Chamber of Commerce in Myanmar reports that the IPA should be finalised in the coming months.

If finalised, the IPA would offer qualifying investors from both sides a more predictable and secure investment environment and carry certain guarantees against discrimination and expropriation of investments. The EU is the largest non-Asian source of FDI in Myanmar, accounting for approximately 10% of the country’s FDI.

Critics have observed that legacy issues relating to land and human rights protections as well as ongoing ethnic tensions may make it more likely that the IPA would negatively impact Myanmar citizens. Concern was also raised that Myanmar does not have the institutional capacity to enforce IPA measures, exposing it to litigation risks and it has been suggested that Myanmar focus on other measures other than an IPA to attract foreign investment, such as labour law reform, improving inter-departmental coordination and red-tape.

Myanmar has entered into approximately 9 other Bilateral Investment Treaties to date with China, India, Israel (signed but not in force), Japan, Korea (signed but not in force), Laos, the Philippines, Thailand and Vietnam (signed but not in force) as well as various other treaties containing investment protections and other investment related instruments.

8. Extraction of mineral deposits suspended

Sources from the Department of Geological Survey and Mineral Exploration under the Ministry of Natural Resources and Environmental Conservation (“MONREC”) have revealed that mineral extraction in excess of 1.18 million acres of land reserved as mineral deposits will be restricted for both local and foreign investors. This include areas allocated for coal extraction in Sagaing and Magwe regions, graphite extraction in Mandalay region and iron in Kachin state.

Whilst certain existing mining blocks will be permitted, the remaining blocks will be suspended and exploration restricted although state-run research projects will continue. It is reported that the restrictions may be temporary but will be reassessed on the basis of environmental considerations.

Permits for new mineral mining blocks have been suspended since July 2016 but concern still exists about illegal extraction activities. 

9. Yangon water taxi service to be introduced by July this year

The Yangon water taxi service is the latest part of the Yangon Regional Government’s (“YRG”) plan to resolve Yangon’s traffic congestion issues. This is in addition to the proposed upgrades to Yangon’s bus and the circular train systems. The introduction of the water taxi service is to encourage commuters to commute by water rather than by bus.

In March of this year, Tint Tint Myanmar Company (“TTMC”) was awarded the sole tender to operate water taxi services on the Hlaing River and Nga Moe Yeik Creek following a tender process run by the Yangon Region Transport Authority which saw applications from foreign and joint venture companies. TTMC has also assumed responsibility for the construction of 23 jetties and the associated costs will not be on the YRG’s balance sheet. TTMC has stated publicly that it will be obtaining a loan from KBZ Bank and that it expects that the approximate cost of the project will range between USD 20-37 million. TTMC have engaged a Sydney-based ferry expert to consult on the project.

The mostly-imported fleet will comprise of up to 70 craft (including catamarans) and commuter services will run every 20 minutes along selected routes to central Yangon. It is intended that these routes be expanded over time. Fares will range from 300 to 500 kyats which must be paid electronically at designated counters or by mobile phone app. The fares also include a travel insurance component.

10. CBM to work to decrease local loan interest rates

U Set Aung, Vice Governor of the Central Bank of Myanmar (“CBM”), has announced that CBM will start to take measures to decrease loan interest rates so that the rates imposed more accurately reflect the risk of loss. The issue will be further discussed in Parliament and among government departments and it is understood that the CBM is currently in negotiations with the International Monetary Fund for assistance. The CBM currently sets 13% as the maximum interest rate for loans.

Local Myanmar bank interest rates are high compared to the rates common to lending operations in other ASEAN members and there are concerns that local entrepreneurs could be at a disadvantage if Myanmar joins the ASEAN Economic Community in 2018. However, local interest rates are not considered to be excessively high when compared to the local inflation rate which the World Bank reports is currently 7.76% and the two issues are interlinked. The current causes of high inflation include Myanmar’s budget deficit, kyat depreciation in foreign exchange markets and money circulated from undisclosed sources.

Local economists have observed that any decrease in local interest rates must be done gradually and in tandem with developing the private sector and the investment market.

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