Myanmar Opens Downstream Petroleum Business For Foreign Investment.

4 August, 2015

 

Myanmar’s Ministry of Energy has recently announced that foreign investment will be permitted in specified circumstances for the importation, storage, distribution and sale of a wide range of petroleum products in Myanmar. Given the current regulatory framework for the petroleum sector as implemented in practice, this will provide the first opening of the downstream retail petroleum market for foreign investment in Myanmar.

 

Foreign investment will be permitted by way of a joint venture with the Myanma Petroleum Products Enterprise (“MPPE”), the Ministry of Energy-owned enterprise responsible for retail and wholesale distribution of petroleum products in Myanmar. In addition to importation, storage, distribution and sale of specified petroleum products (excluding LPG and LNG), the joint venture will cover the rehabilitation and expansion of certain MPPE facilities (“Joint Venture Project”).

 

Background

 

The opportunity for foreign investment was announced recently by way of an invitation to tender issued by the MPPE. The MPPE has invited bids from qualified foreign companies to form a joint venture company (“JVC”) to undertake the Joint Venture Project. The JVC will be formed under Myanmar’s Foreign Investment Law and Special Companies Act and will be initially owned 51% by MPPE and 49% by the foreign joint venture partner. MPPE’s contribution to the JVC will consist of land use rights and existing facilities (such as buildings, machinery, equipment and infrastructure) as capital in kind. The duration of the Joint Venture Project will be a maximum of thirty years, extendable by two additional ten year periods. All permits and licenses required under applicable law will be granted to the JVC.

 

Myanmar’s regulatory framework (including the State-owned Economic Enterprises Law, Foreign Investment Law, and its implementing regulations) is currently unclear as to whether foreign investment is permitted in the downstream retail petroleum market in Myanmar. However, the de facto national policy of the Government has generally prohibited foreign investment in “trading” activities in Myanmar, and in practice the distribution of petroleum products is currently prohibited for foreign investors unless they enter into a joint venture agreement with the Ministry of Energy (which has not occurred to date). Some liberalization of the downstream petroleum market occurred in 2010, but this was limited to allowing selected local companies to provide fuel distribution and related services.

 

Foreign companies currently have limited involvement in Myanmar’s midstream and downstream sectors. In December 2014, Singapore-based Puma Energy Group was selected by MPPE as its partner to distribute jet fuel at Yangon International Airport with the option to expand to other airports. The Thilawa Special Economic Zone in Thanlyin and Kyauktan Township, has also been leased to private companies through Build-Own-Transfer contracts for oil depots, tanks and terminals.

 

The invitation to tender for the Joint Venture Project follows a series of regulatory and commercial developments in Myanmar’s upstream, midstream and downstream sectors in recent years, including other tender processes initiated by the Ministry of Energy this year. Amongst other developments, the Myanma Petrochemical Enterprise (another enterprise owned by the Ministry of Energy) invited local and foreign companies to submit proposals for joint ventures to build a LPG terminal and supply chain in Thanlyin, and lab services for petroleum and petrochemical products.

 

Bid Requirements

 

Bidders have until 13:00 on 20 October 2015 to submit bids for the Joint Venture Project. To be eligible to submit a bid, a bidder must have at least ten consecutive years of experience in the trading business of petroleum products (such as storage, distribution and sale) and must have traded a volume of at least 2,700,000 m3 of petroleum products per annum in the last three years.

 

To submit a bid, bidders must purchase the tender documents for a non-refundable fee of USD10,000 and provide a bid bond in the required form for USD4,000,000.

 

Among other documents, bidders must submit with their bid copies of their constitutional documents, evidence of international past performance and track records on specified matters, copies of audited financial information for the last three years and a bank recommendation confirming their good standing.

 

MPPE will hold a pre-bid conference at the Ministry of Energy on 20 August 2015 for bidders to raise questions and concerns. Each bidder is entitled to raise five comments or questions which must be submitted at least seven days before the conference.

 

Conclusion

 

As the distribution of petroleum products is, in practice, currently prohibited for foreign investors unless they enter into a joint venture with the Ministry of Energy, this tender represents a unique opportunity to access the Myanmar fuel retail market. We anticipate that it will take some time before the Myanmar Government opens the sector again for possible foreign investment.