Unplugging Thailand, Myanmar energy deals
By Shawn L Nance
BANGKOK - Thai Energy Minister Piyasvasti Amranand says he intends to scrap the
previous government's controversial multi-billion dollar plans to ramp up
imports of hydroelectric power and natural gas from neighboring military-run
Myanmar, signaling a potentially significant shift in which direction the
region's energy flows and a possible new era of bilateral antagonism between
the historical rivals.
On October 9, Piyasvasti, making the first public statement by a new minister,
told a local radio station in little-noticed comments
that "sweeping reform" was in store for the kingdom's energy policy, including
bolstering the use of renewable fuel in power production and reconsidering
major projects that aggravated social tensions, which had run high since the
September 19 coup that ousted former prime minister Thaksin Shinawatra's
government.
Toward that end, Piyasvasti suggested that he would shelve long-standing and
controversial plans to build a network of five hydropower dams on the Salween
river system in Myanmar. At a cost that could exceed US$10 billion, the
projects are provisionally designed to generate some 12,500 megawatts of power,
about 85% of which would be delivered to Thailand.
Thailand's new energy czar, a widely respected technocrat and energy expert
with a doctorate from the London School of Economics, reiterated that policy
shift on Friday, telling a gathering of foreign investors and reporters in
Bangkok that Thailand would aim to purchase more hydroelectric power from
neighboring Laos and to explore for more offshore natural gas and oil in the
Middle East and Africa, as well as closer to home in Cambodia, Indonesia and
Vietnam. Notably, Piyasvasti omitted Myanmar from that list.
Under Thaksin, Piyasvasti was the deputy permanent secretary at the Prime
Minister's Office until he resigned in 2003 after clashing with the premier
over several policy issues, including the best way to privatize the state-owned
electricity monopoly, the Electrical Generating Authority of Thailand Plc, or
EGAT, and over the establishment of an independent regulatory commission to
guard against possible monopolistic and collusive pricing behavior, which has
long left consumers beholden to EGAT's pricing discretion.
Similarly, Thaksin's Myanmar strategy, known as "forward engagement", came
under constant fire for placing commercial considerations over pressuring
Myanmar's junta to move towards more democracy and human rights, and for
throwing the pariah regime an economic lifeline that buffered it from economic
sanctions imposed by the US and the European Union. Thaksin's policy pushed
forward the controversial plans to build new hydropower projects on Myanmar's
Salween River.
In October 2005, Thaksin reportedly signed an agreement with the State Peace
and Development Council (SPDC) regime for joint investment in the construction
of the hydropower plants. And last June, EGAT officials traveled to Beijing to
ink a memorandum of understanding with China's largest hydropower company,
Sinohydro Corporation, to jointly develop the Hatgyi hydroelectric station on
the Salween in Myanmar's Karen state, located about 40 kilometers from the Thai
border.
Damming the Salween has been a lightning-rod issue since Thailand signed the
first agreement in 1994 to purchase 1,500 megawatts from the project. The
forced relocations of entire villages, slave labor to clear land and carry
supplies for the army, and extrajudicial killings have all been part of the
regime's military campaigns against ethnic Shan, Karen and Karenni resistance
fighters. Those abuses have more recently been directed against civilians who
live in areas near the proposed dam sites, according to human rights
organizations.
Gas exploration in Myanmar is also a touchy issue. Petrodollars are the Myanmar
regime's prime source of foreign exchange - accounting for some $2.5 billion,
or about 33% of all foreign direct investment since 1998. Human-rights abuses
associated with Myanmar gas projects are a perennial concern. Two years ago, US
oil giant Unocal Corporation settled out of court two lawsuits filed in
California in 1996 by 15 villagers in Myanmar who alleged that they suffered
human rights abuses during construction of its joint-venture Yadana pipeline,
which carries gas from the Andaman Sea to Thailand.
Highly coveted reserves
During Thaksin's tenure, Thailand had thrown its hat into the ring to develop
Myanmar's controversial but highly coveted offshore gas reserves in the A1 and
A3 blocks in the Bay of Bengal off the western Arakan coast.
In August, Thaksin took a delegation that included top energy officials to
Myanmar's new capital at Naypyidaw to negotiate exclusive exploration rights
for the two blocks for Thailand's PTT Exploration and Production Plc, or PTTEP,
a 66%-owned subsidiary of the state-controlled Petroleum Authority of Thailand,
or PTT Plc. And on October 31, PTTEP announced it formally tendered a bidding
application for a 15% to 20% stake in the two blocks, which are already being
developed by a consortium led by South Korea's Daewoo International
Corporation.
With several big state-owned Asian gas firms already vying for the undeveloped
gas fields, the prevailing feeling is that PTTEP has joined the bidding too
late. The Thai company, however, already currently takes all of Myanmar's
natural gas exports from offshore reserves, piping more than one billion cubic
feet of gas per day at a cost of some $1 billion per year, all from the Yadana
and Yetagun projects in the Andaman Sea, in which it has a 25.5% and 19.3%
interest, respectively.
PTTEP also owns the exclusive rights to explore for oil and natural gas in
three projects in the Gulf of Martaban: the so-called M7 and M9 blocks, the M3
and M4 blocks and the M11 block. As the sole importer of Myanmar's gas, the
company was long granted preferential treatment from the junta. But now, says a
company official, they are "alarmed" at the new competition for the A1 and A3
blocks, which Daewoo estimates to have proven reserves of 5.7 trillion cubic
feet (Tcf) to 10 Tcf, with up to 8.6 Tcf believed to be recoverable.
Daewoo signed a production-sharing contract in August 2000 with the Myanmar Oil
and Gas Enterprise for A1 and has been exploring the A3 oil field since 2004.
Daewoo owns a 60% stake in the project and is the major operator of the two
blocks; state-owned Gas Authority of India Ltd, or GAIL, holds a 10% stake;
India's ONGC Videsh Ltd, the overseas arm of state-owned Oil and Natural Gas
Corp, has a 20% interest; and state-run KOGAS, from South Korea, owns the
remaining 10%. PTTEP's opening came in September when Daewoo said it would
announce by early 2007 whether it would divest a portion of its shares to the
company.
Landing transportation rights for the gas may be trickier business. The South
Korean firms have proposed to liquefy it at a yet unbuilt liquefying plant in
Myanmar and ship it as liquefied natural gas (LNG). But the cost could be
prohibitive and it could be several years before an LNG facility in Myanmar
would come on-stream. Thus, constructing pipelines is the more likely option.
To that end, GAIL completed a detailed feasibility report in May for laying a
$3 billion, 1,400-kilometer gas pipeline from the Myanmar port town of Sittwe
to Gaya in Bihar, India, to supply its northeast with gas. And last December,
PetroChina signed a memorandum of understanding with MOGE to build a
2,380-kilometer pipeline from Sittwe to Kunming in China's southwestern
province of Yunnan.
If allowed to tie up with Daewoo as a minority equity partner, PTTEP would
likely build a 1,100-kilometer underwater pipeline from the Bay of Bengal to
join up with its existing 670-kilometer pipeline that currently brings gas to
Thailand from Yadana and Yetagun. It would be part of the company's plans to
spend 233 billion baht (US$6.16 billion) in the five years to 2010 to pump up
output from existing gas fields in the Gulf of Thailand and to explore for new
reserves abroad in offshore fields in Cambodia, Indonesia, Vietnam, Malaysia,
Oman, Algeria and South Africa.
Currently, more than 70% of electricity in Thailand is generated by natural
gas, 30% of which is imported - all from Myanmar. With domestic production
expected to peak in 2010 and domestic reserves expected to run dry in 30 years,
Thai energy planners are scrambling for new sources of power.
With Thailand's own hydro capacity already maxed out, non-hydro renewable
energy sources like wind, solar and biogases accounting for less than 1% of
generation capacity and unlikely any time soon to play a significant role in
power supply structure, and with coal-fired plants sure to stir up strong
environmental opposition, Piyasvasti has admitted that for now, Thailand must
depend on its neighbors, apart perhaps from Myanmar, to shore up its energy
security.
The Malaysia-Thai Joint Development Area in the Gulf of Thailand is scheduled
to come on stream next year and produce 700 million standard cubic feet per day
of gas. PTTEP is also exploring gas and oil options in Indonesia's Nantuna
field, considering building a pipeline from the Gulf of Tonkin in Vietnam and
more recently is engaged in offshore exploration in Cambodia. Piyasvasti also
said that the government would boost hydropower imports from Laos.
Even with other options in the cards, and with independent energy analysts
claiming that Thailand's energy demand forecasts have been inflated by almost
50%, PTTEP officials who spoke with Asia Times Online still consider the A1 and
A3 blocks "very strategic", thus heightening worries that they've entered the
Myanmar hydrocarbons bonanza too late.
Political baggage
Another hangup could come from Thailand's new prime minister, retired army
general Surayud Chulanont, who has long been at odds with the SPDC regime and
so far looks to be in no hurry to patch things up. On his first foreign trip as
premier, which took him to Laos, Cambodia and Malaysia in October, he snubbed
Myanmar, to the dismay of PTTEP officials - though later, on the sidelines of
the China-ASEAN summit in Nanning on November 1, he reportedly met with Myanmar
Prime Minister Soe Win and tentatively scheduled a visit for later this month.
As army chief from 1998 to 2002, Surayud openly criticized Myanmar's government
for its complicity in moving drugs into Thailand and he opposed moves to drive
back the tens of thousands of refugees who had fled Myanmar for safety along
the Thai border. More aggressively, in March 2002, he ordered one of Thailand's
largest military operations in recent times, when Thai troops moved deep into
Myanmar territory to destroy several drug labs and military bases controlled by
the pro-junta militia the United Wa State Army.
Sources close to the SPDC say the Myanmar generals have never forgiven Surayud
for that breach of sovereignty. To smooth cross-border ties, in 2002 Thaksin
shuffled Surayud off to the symbolic post of supreme commander of the armed
forces. Now a member of the Privy Council, the palace's top advisory body, and
a staunch nationalist, Surayud's appointment as prime minister will likely not
sit well with the junta's leaders.
Given India's and China's greater political leverage and their headstart in the
gas sweepstakes, and the legacy of mistrust between the Thai and Myanmar
governments, it's no wonder that a PTTEP spokesperson told the press last month
that he was optimistic but "not fully confident" that the company would secure
the rights to A1 and A3. A former Western diplomat with close ties to the
junta's inner circle was less sanguine: "They [PTTEP] can forget about it."
With the gas deal precariously in the balance, attention has turned to the
hydro projects, which until now continue despite the avowals of Thailand's new
energy minister to scrap them. If all the dam projects go ahead, the Salween
would become one of the world's most heavily dammed river systems in the world
and would earn the regime plenty of cash to sustain its misrule.
Politics aside, one reason Piyasvasti wants to wean Thailand off Myanmar's
energy, says a ministry insider, is that he is dubious of the Asian Development
Bank-sponsored Greater Mekong Sub-region (GMS) integrated power grid, which
hypothetically would link Thailand, Myanmar, Cambodia, China, Laos and Vietnam
in an energy-sharing pact.
He is also known to prefer bilateral deals to the multi-country arrangement
proposed by the Asian Development Bank, which he feels lacks the legitimacy to
tell individual GMS countries what to do. Skeptical of the economic and
political sense of the project, Piyasvasti reportedly thought the GMS program
would eventually run aground, according to the ministry insider.
But the project continues to move forward - to the point where several
observers feel that the dams may be too far advanced to roll back the clock on
the projects. The Hatgyi dam, for instance, would be the first on the 2,800
kilometer Salween, the last major free-flowing river in Southeast Asia. Its
installed capacity could reach 1,500 megawatts at a cost exceeding $1 billion.
Located in Myanmar's Karen state, some 30 kilometers from the Thai border, the
dam is tentatively scheduled to be completed by 2013.
In December 2005, Thailand's EGAT signed a memorandum of agreement with
Myanmar's Department of Hydropower, under the Ministry of Electric Power, for
joint-investment and implementation of the Hutgyi dam construction to commence
in late 2007. As with most of the dam and gas projects in Myanmar, details of
the agreement were not disclosed. Highlighting the dangers that come with doing
business in war-torn Myanmar, in May EGAT geologist Chana Mongplee was killed
by a landmine explosion at an EGAT campsite near the proposed site.
China's leading hydropower company, Sinohydro Corporation, fueled by
low-interest loans from state-run Chinese banks, is set to act as the major
investor and contractor for the design, procurement and implementation of the
Hatgyi dam. The Tasang dam, designed at 228 meters high with an installed
capacity of 7,110 megawatts, would meanwhile be the biggest in Southeast Asia,
bringing with it an estimated price tag of some $6 billion.
Planning is already at an advanced stage and several agreements have already
been signed for financing its construction. Though located in the main area of
conflict in Shan state where resistance forces have been fighting the Myanmar
army for more than 40 years, and estimated to flood some 870 square kilometers
of land, sources who live near the dam site say the construction continues on
the road to the Nong Ook border crossing in Thailand and on land being cleared
to build transmission lines to the country.
That construction is being carried out by Thailand's privately-owned and
well-connected MDX Plc, a floundering real estate and infrastructure
construction company based in Bangkok. One of its advisors, Subin Pinkayan, was
the former commerce minister under the Chatichai Choonhavan government
(1988-1991), which like Thaksin's government was ousted in a military coup.
A former MDX official who spoke with Asia Times Online believes that the Tasang
and Hatgyi projects will carry on with or without Thai participation, though he
added that building the other dams - the Weigyi and Dagwin dams in Karen state,
and the Mong Hta dam in Shan state - would likely be too risky to secure
financing.
Some energy experts now wonder whether Piyasvasti will really pull the plug on
all the Myanmar mega-energy projects and if he does, whether his ministry can
devise an economically viable solution to Thailand's pressing energy dilemma.
In his then capacity as chairman of Kasikorn Asset Management, Piyasvasti told
a group of reporters last year that the government should start considering a
nuclear power plant to shore up national energy security. Nuclear power, he
said, would prove less expensive and produce less pollution than other options
- presumably including doing deals with Myanmar's military junta.
Shawn L Nance is former deputy editor of the Irrawaddy news magazine. He
is currently a freelance journalist based in Thailand.
