Myanmar-China Oil and Gas Pipeline Projects

The Myanmar-China Oil and Gas Pipelines Project is primarily run by two special purpose vehicles (SPV) between Myanmar’s state-owned enterprise, the Myanmar Oil and Gas Enterprise (MOGE) and China’s state-owned enterprise, the China National Petroleum Corporation (CNPC).

Myanmar’s Foreign Investment Law (2012) states that any foreign company that wants to work in the oil and gas sector must enter into a joint venture (JV) with MOGE or a private Myanmar company. Therefore, the oil pipelines project is a JV between MOGE and the South-East Asia Crude Oil Pipeline Company Limited (SEAOP), a subsidiary of CNPC. CNPC owns 50.9 percent of the SEAOP shares, while MOGE holds 49.1 percent.

The gas pipelines, on the other hand, have an SPV consisting of the MOGE and five other foreign companies called the Southeast Asia Gas Pipeline Company Limited (SEAGP). These five companies are: the Korea Gas Corporation (KOGAS), the Korean POSCO Daewoo International Corporation (Daewoo), Indian-owned ONGC CASPIAN E&P B.V., GAIL India Ltd., and the South-East Asia Gas Pipeline Company Ltd. (SEAP), a Hong Kong-based company owned by CNPC. The Myanmar government’s MOGE only owns 7.365 percent of total shares in the SPV, while the Chinese-owned CNPC-SEAP is the major shareholder and can make final decisions as the operator. SEAP is a major investor in both SPVs for the pipeline projects.

The estimated funding for these projects stands at USD 2.54 billion, where USD 2.3 billion was allocated for the oil pipelines, and USD 2 billion for the gas pipelines. According to the Myanmar Extractive Industries Transparency Initiative (EITI) report for 2017 to 2018, MOGE took several loans from the China Development Bank (CBD) at a 4.5% interest rate in November 2010. As of 31 March 2018, the outstanding CDB loan balance for the gas pipeline was USD 1 billion and USD 88.7 million for the oil pipeline. Sources for the remaining funding remain unclear.

Feasibility, Political Capture and Corruption

The feasibility of these projects has been called into question, as Myanmar is now burdened with a huge amount of debt due to the pipeline constructions. The high interest rate (4.5%), which is among the highest in Myanmar’s bilateral loans, makes repayment a challenge. The risk is especially high as Western sanctions against Myanmar have further exacerbated the country’s dependence on Chinese investment, which could allow Chinese lenders to set higher rates.

Political capture in this project is not as evident as the issue of corruption. During the military rule, corrupt officials misused their powers to unfairly acquire lands from farmers which were more than what was required for the construction despite the existing land acquisition laws. On environmental impacts, these projects had improper waste disposal and construction activities—partly resulting from the land grabbing practices of corrupt officials—causing environmental degradation, flooding and soil erosion along the pipelines.

Lack of public disclosure of SOE revenues

The first Myanmar Extractive Industries Transparency Initiative (EITI) report in 2015 indicated that more than 50 percent of revenues collected were kept in separate “Other Accounts” (OAs) shielded from public scrutiny instead of being transferred to the state budget. These OAs were namely Union Fund Accounts (UFA-OAs), separate bank accounts to retain a portion of net profits created in 2013 under General Thein Sein’s government. Like other SOEs, MOGE also has OAs and operates with its own funding. In the fiscal year of 2017–2018, MOGE transferred about USD 504 million into these “Other Accounts.” OAs were meant to be abolished by the cabinet directive issued in June 2019. This directive required SOEs to transfer all of their OA balances to Union Budget Fund Accounts for priority expenditure items (such as health and education) and close their OAs, but as of 2020, MOGE’s OAs are still in use.

Lack of Public information regarding concessional contracts

In 2016, MOGE started to disclose some of the information on the pipeline projects, such as total production figures for each offshore field, crude oil and gas volumes for export and domestic use, production sites currently under production sharing contracts, and companies engaged. However, detailed information on the terms and conditions of concessional contracts, such as block numbers, operator names, country of origin, activities (study period, exploration, and production), Myanmar Investment Commission (MIC) permit numbers, commencement and expiry dates, company statuses (active/pending), locations, and share interest percentages, are currently not publicly available.

Weak Regulatory System

Although formal supervisory institutions exist in Myanmar, they do not have the legal mandates and resources to subject SOEs to proper checks and balances. Instead, relevant ministries play both a regulator and an implementer role: the ministries regulate industries while also carrying out projects using the SOEs under their control. This means that while ministries act as the nation’s regulatory institutions, they also act as the operating agencies of SOEs and hold overlapping roles and responsibilities, since they are the owners. This creates a conflict of interest: as SOE managers are free to sign concession contracts, they exercise broad discretionary power in signing concessional agreements, making them the gatekeepers to natural resources for foreign investors.

To capture different practices, quality and level of transparency, researchers are asked to answer six related questions for each data point. 1 point is assigned for each question to which the answer is “yes.” Each data point therefore has a total score between 0 and 6, where “0” means no information was publicly available at the time of research (not transparent) and “6” means full transparency.