Myanmar’s power sector: a T-line too far?

Myanmar’s Ministry of Electricity and Energy (MOEE) has provisionally extended the deadline to meet the power purchase agreement conditions precedent (CPs) on the Bt9.778 billion ($320 million) Kanbauk combined cycle gas turbine (CCGT) power project in the country's south-east, for which the sponsor is based in Thailand.

Around three years have elapsed since the PPA signed in 2016. 

Following regular requests seeking clarity from MOEE, sponsor Myanmar UPA (MUPA) – a subsidiary of Bangkok-listed United Power of Asia (UPA) – disclosed last week (16 September 2019) that the ministry would extend the time to meet the CPs of the PPA, but that extension is subject to the following: 

  • construction of a nearby power transmission line (T-line)
  • gas supply agreement
  • land lease agreement 

IJGlobal data shows substantial government interest in mitigating Myanmar's risk of blackouts by developing the power and renewables sectors. With a third (or 44% if including renewables) of all projects in the power sector, the government is keenly aware that it must address its rolling blackouts. 

Yet, the 200MW Kanbauk CCGT project which could boost the country's generation has faced many delays and illustrates the difficulties project sponsors routinely encounter in this frontier market. 

Mum's the word 

"There is reason to be concerned that UPA getting attention on the project and CPs may make the project seem more real than it is," cautioned an offshore financial adviser.

Some three and a half years ago (March 2016), MUPA entered into the PPA with Myanmar Electric Power Enterprise (MEPE) for the 200MW Kanbauk CCGT project. 

Control Risks Myanmar analyst Thiha MaungMaung noted: "Many PPAs were postponed after the new National League for Democracy government took power in April 2016, because of the fiscal policy of the Ministry of Planning and Finance {MOPF}."

The first complication – the key CP of the PPA, according to UPA – was for the Electric Power Generation Enterprise (EPGE) to draw down on an Asian Development Bank (ADB) loan to construct the necessary 286km Mawlamying-Ye-Dawei T-line linking the power plant to Myanmar’s national grid. 

"Kanbauk is cut off from the national grid," said a Myanmar-based legal adviser. "These power projects down south will not necessarily benefit the local communities since the power will flow north towards the economic capital of Yangon."

In December 2017, EPGE had made enough progress on overcoming different conditions placed on the loan by ADB for UPA to announce that EPGE expected the funds to be available in Q4 2018, "thus fulfilling the PPA condition precedent", according to the company. 

However, the deadline to fulfil the CPs of the PPA was 28 April 2018, a month after the two-year anniversary of the PPA’s signing. EPGE requested MOEE to give a two-year extension to resolve the CPs of the PPA.

But time rolled on and MOEE was actively revising its power policy, further delaying a decision on the request for an extension. 

UPA said in September (2018) it expected an MOEE announcement by the end of 2018, and then quarter by quarter the anticipated announcement never arrived... until last week. 

A gallant knight arrives 

In the meantime, the Export-Import Bank of China was supposed to provide the bulk of the Mawlamying-Ye-Dawei T-line financing. "However, MOPF wasn’t happy with the interest rate, so it was negotiating to get more from ADB," said MaungMaung.

The Manila-based multilateral eventually signed in December 2018 a $299 million loan with Myanmar’s MOPF for the Myanmar Power Network Development (MPND) project. 

The Mawlamyine-Ye-Dawei T-line package is part of the $308.9 million MPND project, comprising three packages: 

  • package 1: upgrade and construct 48 new 66/33/11kV substations with 843km distribution lines in Aeyawardy, Bago, Kayin, Mon and Rakhine
  • package 2: 16.6km Ahlone-Thida T-line with a 230/66/11kV 150 MVA Ahlone substation and 230/66/11kV (3x150 MVA) GIS Thida substation
  • package 3: 286km Mawlamyine-Ye-Dawei T-line with 230/66/11kV (2x50 MVA) Ye substation and 230/66/11kV (2x50 MVA) Dawei substation 

MPND is sovereign financed by: 

  • ADB’s Asian Development Fund – $298.9 million
  • Myanmar’s MOPF – $10 million 

MOEE had invited (March 2019) international competitive bids to design, supply, install and commission the 286km, 230kV Mawlamyine-Ye-Dawei T-line package. MOEE has yet to announce a preferred bidder, but the schedule is for construction completion in 2022. 

The ministry had also invited firms to be implementation advisers on MPND’s distribution and transmission, but has yet to select the advisers after final bid deadlines were in April and May (2019), respectively.

MOEE shortlisted six firms on 6 March 2019 for the distribution advisory mandate: 

  • Byucksan Power
  • China Energy Engineering Group Guandong Electric Power Design Institute
  • Gen Consultants
  • KEPCO
  • NEWJEC
  • Mercados Energy Markets International 

On 1 April 2019 the ministry also shortlisted six advisers for the transmission mandate: 

  • NEWJEC
  • KEPCO
  • Mott MacDonald
  • GOPA – International Energy Consultants
  • SMEC International
  • Korea Electric Engineering and Consulting 
No biggy 

The second hurdle to achieving the PPA's CPs involved a change in the offtaker. In 2016, the Ministry of Energy combined with the Ministry of Electric Power, forming MOEE. MEPE, a signatory to the PPA, subsequently became the Electric Power Generation Enterprise (EPGE) and MOEE had to change the PPA. 

"That was not a big deal," countered a market source. "And because the ministry looking after oil and gas was rolled into the power ministry, for the Kanbauk CCGT it likely streamlined things."

Thanks but no thanks 

The third obstacle is likely far more financially meaningful. 

UPA shareholders had to vote on the PPA since the Thai stock exchange considered the signing of the agreement to be an asset acquisition, as the greenfield project represents 338% of UPA’s total assets. UPA’s independent financial adviser Capital Advantage (CapAd) and the board of directors, however, were conflicted. 

CapAd recommended shareholders reject the PPA, noting the project: 

  • might have a negative rate of return
  • estimated the range in the project’s net present value as Bt379 to Bt62 million, including certain periods with negative cash flow
  • has an expected 10.37% annual internal rate of return (IRR), which is lower than UPA’s weighted average cost of capital
  • has a 10.82-year payback period

The UPA board, nonetheless, recommended shareholders approve the PPA. 

Ultimately, the company’s 76 shareholders approved almost unanimously (99.8569%) the certification and ratification of the PPA in December 2016. 

This kerfuffle was not the first time UPA had bucked the advice of an IFI. 

In 2015, the company was trying to acquire 75-100% equity interest in Andaman Power and Utility (APU), which held a 20MW concession in Kanbauk. The IFI had recommended shareholders reject the acquisition. UPA ultimately ignored the recommendation of adviser Bangkok-based KTB Securities. 

In response to CapAd’s stinging report, however, UPA mandated in Q4 2016 the Worley Parson’s team in Thailand to mitigate the 200MW Kanbauk project’s construction risk. Worley, as sponsor’s engineer, has been investigating the initial design phase and project cost estimation, with planning and construction supervision on the horizon, if the project goes ahead. 

LNG-to-power's primacy

A Hong Kong-based financial adviser is sceptical the 200MW Kanbauk project will close. "The UPA project, if it ever had any legs, faces very serious challenges now. The conditions mentioned are pretty basic," said the adviser. 

Market participants can explore other, more real opportunities in Myanmar's existing project pipeline.

"Let’s assume they get the land lease and the transmission line built. The gas availability is not there. This is why almost all more recent efforts have been LNG to power projects," added the source. "Of course, there are all the other basic bankability issues. And then we come back to an inexperienced, small sponsor with an old PPA that they are now touting as still alive."

Three of the six power projects, which Myanmar's government gave a notice to proceed (NTP) in 2018, are LNG-to-power:

"These more recent LNG-to-power projects are a higher priority for MOEE," insisted another market source. "We have a very hard time believing MOEE would prioritise the UPA project."

Two hydropower plants and a CCGT also won NTPs:

IJGlobal understands that all six projects are bogged down in commercial negotiations. 

"The government has been trying to sign or revise several PPAs under Myanmar Kyat currency, instead of USD as the payment option," said Control Risks analyst MaungMaung. "Many foreign investors are refusing to agree."

"There are some challenges around the economics of the {1,230MW Kanbauk LNG / CCGT / FSRU} project and so Total is in discussions with the government to address those concerns," said a market participant. Meanwhile, Siemens has "effectively exited the project" as a sponsor, and will likely only be an equipment supplier of its Siemens 8000H class gas turbines.

Thai-state owned oil and gas company PTT became more involved last year (2018) on the project as it was imagined as a combination of LNG-to-power and natural gas export to western Thailand, given the proposed power plant's proximity to the Thai border.

Here, a major discussion involves the split of the regasified LNG between supplying the power plant and exporting it into western Thailand as natural gas. "That is a very key element of the project," said a person close to it. "A lot of PTT's drivers are around getting natural gas into Thailand."

A "significant" gas pipeline already exists which could transmit the natural gas. Some limited infrastructure would need to be built to get the LNG from the terminal to the pipeline but "it is a relatively small amount of cost there", according to the source.

However, even with this option to export gas to Thailand, Total's $2.1 billion project remains in limbo.

"We really have not been asked to do anything meaningful in the last six months," cautioned a source. "I sense PTT may also be looking at other things in Myanmar, in addition to or alongside the {Kanbauk} investment." 

Advisers on the 1,230MW Kanbauk project to date have included:

  • SMBC – financial
  • Allen & Gledhill – legal
  • Allen & Overy – legal
  • Shearman & Sterling – legal
  • VDB Loi – legal

As for whether both UPA's and Total's Kanbauk power projects will be built, the Myanmar Government might have tipped its hand in an August 2019 MOEE map of existing and under construction power stations, transmission lines and substations.

Only one of the projects is depicted as future (under construction): Total's 1,230MW project.

Asset SnapshotAhlone Combined-Cycle Gas-Fired Power Plant Expansion (236MW)

Est. Value:
THB 5,700.00m (USD 184.04m)
Full Details

Asset SnapshotKanbauk Gas-Fired Power Plant (1.23GW)

Value:
N/A
Full Details

Asset SnapshotMee Laung Gyaing Gas-Fired Power Plant (1390MW)

Value:
N/A
Full Details

Asset SnapshotKyaukphyu Combined-Cycle Gas-Fired Power Plant (135MW)

Value:
N/A
Full Details

Asset SnapshotKanbauk CCGT Power Plant (200MW)

Value:
THB 9,778.00m (USD 310.74m)
Full Details

Asset SnapshotDeedoke Hydro Power Plant (56MW)

Value:
N/A
Full Details

Asset SnapshotMyanmar Power Network Development Package 1 (843KM)

Value:
N/A
Full Details

Asset SnapshotMyanmar Power Network Development Package 2 (16.6KM)

Value:
N/A
Full Details

Asset SnapshotMawlamyine-Ye-Dawei Transmission Line (286KM)

Value:
N/A
Full Details

Asset SnapshotAhlone Combined-Cycle Gas-Fired Power Plant (120MW)

Value:
THB 5,500.00m (USD 177.58m)
Full Details

Asset SnapshotShweli 3 Hydropower Plant (671MW)

Value:
N/A
Full Details

Transaction SnapshotAhlone Combined-Cycle Gas-Fired Power Plant Expansion (356MW) PPP

Value:
$184.68m USD
Concession Period:
30.00 years
PPP:
Yes
Full Details

Transaction SnapshotKanbauk Gas-Fired Power Plant (1.23GW)

Transaction SnapshotMee Laung Gyaing Gas-Fired Power Plant (1390MW)

Transaction SnapshotKyaukphyu Combined-Cycle Gas-Fired Power Plant (135MW)

Transaction SnapshotKanbauk CCGT Power Plant (200MW)

Value:
$310.74m USD
Full Details

Transaction SnapshotDeedoke Hydro Power Plant (56MW)

Transaction SnapshotMyanmar Power Network Development (MPND) (1145.6KM)

Financial Close:
28/12/2018
Value:
$308.90m USD
Equity:
$10.00m
Debt:
$298.90m
Debt/Equity Ratio:
97:3
Full Details