Technical Assistance Consultant’s Report · 2016-08-23 · March 2016 Republic of the Union of Myanmar: ... 3.9 First Electricity Law Workshop 38 ... regulation of financial activities

Technical Assistance Consultant’s Report

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design.

Project Number: 46486 March 2016

Republic of the Union of Myanmar: Enhancing the Power Sector’s Legal and Regulatory Framework (Financed by the Government of Norway)

Prepared by DFDL Thailand

For the Ministry of Electricity and Energy

Financed by the

Government of Norway

MYANMAR

Enhancing Power Sector’s

Legal and Regulatory Framework

FINAL REPORT

TA-8469 MYA

Contract No. 110892-S52300

DFDL Thailand

(46486-001)

Prepared by:

Robert Fitzgibbons Jr. (DFDL)

Audray Souche (DFDL)

Matthew Christensen (DFDL)

William Derbyshire (ECA)

E ha i g Po e “e to s Legal a d ‘egulato F a e o k | Fe ua 2

APPRECIATION

The DFDL Consulting Team wish to record its appreciation of the support from ADB staff, in particular Chi Nai

Chong, James Liston, Jong-Inn Kim, and Christine Samaniego and the hospitality and efforts of the Ministry of

Electric Power, in particular U Khin Maung Win, the then Director General of the Department of Electric Policy

a d Pla i g DEPP a d the p i e o ta t at the Mi ist of Ele t i Po e , Deput Di e to Ge e al of DEPP, Daw Mi Mi Khaing (and her team), H.E., Deputy Minister U Aung Than Oo, and H.E. Deputy Minister U

Maw Thar Htwe. Personal thanks are due to U Aung Win Kyaw our ADB project coordinator, Audray Souche,

Matthew Cristianson and Viacheslav Baksheev of DFDL, the Honorable David Butcher, and the staff of the

Ministry of Electric Power too numerous to list all individually.


ABBREVIATIONS

ADB Asian Development Bank

ARR Allowed Revenue Requirement

BOT Build, Operate, Transfer

DEP Department of Electric Power

DG Director General

DRD Department of Rural Development

ERC Electricity Regulatory Commission

ESE Electricity Supply Enterprise

IFC International Finance Corporation

IPP Independent Power Producer

JICA Japan International Cooperation Agency

KW Kilowatt

MAI Ministry of Agriculture and Irrigation

MEPE

MIC

Myanma Electric Power Enterprise

Myanmar Investment Commission

MLFRD Ministry of Livestock, Fisheries, and Rural Development

MOE Ministry of Energy

MOEP Ministry of Electric Power

MOF Ministry of Finance

MOST Ministry of Science and Technology

MOU Memorandum of Understanding

MW Megawatt

NEMC National Energy Management Committee

NEP National Electrification Plan

NPV Net Present Value

O&M Operation & Management

PPA Power Purchase Agreement

REMC Rural Electrification Management Committee

REWSC Rural Electrification and Water Supply Committee

RFP Request for Proposal

RFQ Request for Qualification

SHS Solar Home Systems

SPP Small Power Producer

TOR Terms of Reference

USD United States Dollar

VEC Village Electrification Committee

YESC Yangon Electricity Supply Corporation


TABLE OF CONTENTS

Executive Summary 6

Chapter 1: Introduction 10

1.1 Background 10

1.2 Terms of Reference 10

1.3 Work Effort and Product 13

1.4 References, Definitions and Capitalized Terms 15

Chapter 2: Preparation of New Electricity Law 16 (Phase 1 - Tasks 1&2)

2.1 Initial Assessment 16

2.2 Major Identified Shortcomings 17

2.3 Reactions to Identified Shortcoming 19

2.4 Review of Subsequent Drafts of New Electricity Law 20

2.5 Analysis and Assessment of New Electricity Law 20

Chapter 3: Electricity Rules to Implement New Electricity Law and

to Establish Electricity Regulatory Commission (Phase 2 - Task 1) 23


3.2 Defining the Content of Electricity Rules 23

3.3 Regulatory Features from International Best Practices 27

3.4 Electricity Rules Drafting Effort 30

3.5 Initial Version of Draft Electricity Rules 30

3.6 Implementation of Electricity Law 31

3.7 Establishment of the Electricity Regulatory Commission (ERC) 34

3.8 Redress of Shortcomings of New Electricity Law 37

3.9 First Electricity Law Workshop 38

3.10 Reaction of Other Union Government Institutions 38

3.11 Second Electricity Law Workshop 38

3.12 Final Version of Electricity Rules 38

3.13 Analysis and Assessment 39

Chapter 4: Preparation of Power Sector Supporting Regulations 42 (Phase 2 – Tasks 2&3 and Phase 3)


4.2 Task Revisions Due to ERC Exclusion from Regulation 42

4.3 Status of Supporting Regulations 43

4.3.1 MOEP Filing Procedures Regulations 43

4.3.2 MOEP Permitting Regulations 45

4.3.3 MOEP Tariff Regulations 50

4.3.4 MOEP Investments, Power Procurement, and Resource Acquisition Regulations 53

4.3.5 MOEP Competitive Tenders and Solicitations Regulations 57


4.3.6 ERC Procedures 63

4.4 Analysis and Assessment 66

Chapter 5: Preparation of Rural Electrification Law and Implementing Regulations 72 (Phase 1- Task 2 and Phase 2- Task 2)


5.2 Background 73

5.3 Challenges and Impediments to Rural Electrification 74

5.4 Recommended Content for New Rural Electrification Law 78

5.4.1 Objectives 78

5.4.4 Establishment of Lead Government Institution 78

5.4.5 Establishment of Executive Secretariat 80

5.4.6 Requirements for the National Rural Electrification Master Plan 81

5.4.7 Coordinating Tariffs with Funding of Rural Electrification 81

5.4.9 Directive to Revise Program for Household Electrification 81

5.4.10 ESE and YESC: Cost Recovery, Subsidies and Connection Costs 81

5.5 Rural Electrification Programs 82

5.5.3 Small Power Producers and Distributors (Grid Connected or Isolated) 82

5.5.27 Distribution Sub-Franchises and Subcontractors 86

5.6 Rural Electrification Fund 89

5.7 Rural Electrification Finance Corporation 90

5.8 Investment Promotion Privileges 90

Chapter 6: Conclusions- Looking Forward 91

6.1 Additional Regulations 91

6.2 Internal Regulatory Organization, Process and Procedures 91

6.3 Human Capacity Building 91

6.4 Rural Electrification Law 92

Appendices

A: Terms of Reference

B: New Electricity Law

C: Rural Electrification Law

D: Electricity Rules

E: Requested Regulations and ERC Rules

F: Work Products (English)

G: Work Products (Myanmar)

H: Inception Report

I: Interim Report

J: DFDL Consulting Team CVs

(available upon request)


Executive Summary

This Project is the result of the request of the Government of the Republic of the Union of Myanmar for the

Asian Development Bank (ADB) and the Government of Norway to assist the Ministry of Electric Power (MOEP)

to prepare a new electricity law and subsidiary legal instruments to enhance the legal and regulatory framework

for the Myanmar power sector which reflects current international standards and enables the introduction of

an electricity regulator and corresponding institutional arrangements. The key objective of enhancing the legal

a d egulato f a e o k is to suppo t the go e e t s efo age da fo the po e se to i p o idi g an improved regulatory framework to support the gradual restructuring of the power sector; (ii) encouraging

greater private sector participation in power sector projects and enabling third-party network access; (iii)

establishing and implementing rural electrification programs; and (iv) introducing an electricity regulator

consistent with internationally recognized best practices.

The technical assistance provided pursuant to this Project was divided into four components, and the key

findings are set forth below.

Assisting the Preparation of the New Electricity Law

At the initiation of this Project in February 2014, a draft of the new Electricity Law had already been prepared

under the supervision of the Minister of the MOEP, submitted to the Office of the Attorney General for

comments, approved by the Cabinet, and submitted to Parliament. The first task of the DFDL Consulting Team

was to prepare extensive comments on the draft Law identifying potential shortcomings and proposing

revisions thereto intended to reflect international best practices.

Most notably, the draft Law; (i) misallocated regulatory responsibilities; (ii) set forth insufficient regulatory

authority; (iii) failed to include pre-established standards to govern regulatory decisions; (iv) provided

inadequate details regarding permitting and the formation of the regulatory Institution; and (v) did not provide

meaningful appeals of regulatory decisions. However, MOEP management declined to propose any changes to

the draft Law since its enactment was imminent and the foregoing shortcomings were included in the new

Electricity Law.

Nonetheless, the new Electricity Law enacted in October 2014 represents a significant step towards the

establishment of an effective legal and regulatory framework for the Myanmar power sector. Notably, the new

Law provides for the establishment of the Electricity Regulatory Commission (ERC). The new Law provides the

legal basis for the corporatization and privatization of state-owned power sector enterprises such as the

Electricity Supply Enterprise (ESE) and the Myanmar Electric Power Enterprise (MEPE). In addition, the new

Law clarifies jurisdictional boundaries for regulatory responsibilities between the various levels of government,

and establishes a permitting regime to control participation in and structure of the power sector. The new

Electricity Law creates a solid foundation to support the issuance and application of rules and regulations that

will provide context to the Law itself.

Further, the shortcomings identified with the new Electricity Law were redressed through the Electricity Rules

and implementing regulations issued by the MOEP, currently awaiting Parliamentary approval, with one notable

exception. This exception is the requirement for MOEP regulatory decisions to be submitted for approval by

the Union Government as being the sole avenue for appeals and redress until the Electricity Law is revised.


Preparation of the Electricity Rules and the Establishment of the ERC

The draft Electricity Rules submitted to Parliament for approval will, upon their enactment, constitute a second

and perhaps even more significant step forwards, laying a solid legal foundation for effective power sector

regulation. The Electricity Rules will help establish the basic framework for the regulation of the Myanmar

power sector.

The Electricity Rules establish a permitting regime through which MOEP will control participation in the power

sector with defined service obligations for each type of power sector participant. The permitting regime is

designed to be flexible in order to enable future power sector structural reforms to be easily implemented. In

addition, the authority and regulatory responsibilities of MOEP are significantly expanded to include the

regulation of financial activities and organizational affairs, technical and industry standards, codes of conduct,

the forecasting of load growth, least-cost resource planning, and investment planning and resource

procurement, thus ensuring that MOEP has the required tools to protect the power sector against monopolistic

abuses.

Transparency and predictability are promoted in the Electricity Rules through the requirement that all MOEP

regulatory decisions are to be in written form setting forth their factual and legal basis, and the specification

for pre-established standards to govern all significant regulatory decisions, including permit issuances, tariff

determinations and regulatory approvals of financial activities, mergers and corporate reorganizations,

investment and resource acquisition, power procurement and power purchase agreements.

Importantly, the Electricity Rules provide greater detail regarding the processes and requirements applicable

to tariff determinations by basing them upon expressly stated principles and standards; most notably to allow

the recovery of all costs incurred in meeting demonstrated customer needs, and that the rate of return on

power sector capital investments are to be at a level that promotes investments in equipment and facilities.

Notwithstanding the significant benefits that will be achieved by the Electricity Rules, notable shortcomings of

significance remain, the most important being the absence of any mechanism by which the ERC can become

involved in performing regulation. In addition, unlike for the ERC, the Electricity Rules do not set forth any

requirements regarding the regulatory organization, process, and procedures for the MOEP. Thus, by

consolidating all regulatory tasks with the MOEP instead of with the ERC, the process for regulation by MOEP

will be left entirely unregulated with no safeguards to promote transparency and accountability. The basic

foundation of the MOEP internal organization, process, and procedures by which the MOEP will perform its

regulatory tasks should be established and in place before MOEP commences with the performance of its

regulatory responsibilities.

Preparation of the Power Sector Supporting Regulations

Six regulations were selected for prioritized preparation. These efforts resulted in a core set of workable

regulations that support the operationalization of the MOEP regulatory functions, and in several regards include

features that will move M a a s power sector regulation closer to international best practices.

Filing Procedures. The draft MOEP filing regulations address all of the elements of regulatory proceedings, and,

along with the other regulations, are intentionally simple to minimize confusion and maximize effective

application. The draft regulations include features consistent with international best practices, such as the

publication of notices of all regulatory filings, an opportunity for members of the public who could be adversely

affected to participate in regulatory proceedings, and the possibility of a public hearing regarding disputes as

to material facts. These features should help to improve the transparency of MOEP regulation.


Permitting Regulations. The draft MOEP permitting regulations address applications for, revisions and

modifications, and suspensions and revocations of Permits. These regulations set forth the form for Permit

applications and the information required to be provided for in; (i) all Permit applications; (ii) applications for

each type of Permit and each type of Electricity Related Works; (iii) applications involving both existing and new

power facilities; and (iv) applications for each type of power facility, including thermal and hydro power

generation, transmission and distribution.

Two features are particularly noteworthy for private developers. First, the promotion of transparency. If the

MOEP intends to deny a permit application, the applicant must be granted an opportunity to present to the

MOEP the reasons its application should not be denied. Second, Permits are prohibited from being issued until

the applicant has obtained all requisite governmental approvals, and for generation Permits, the execution of

a pre-approved power purchase agreement.

Tariff Regulations. The draft tariff regulations set forth formulas by which tariffs are to be determined for each

type power sector activity and each type power generation technology while providing the details to establish

revenue requirements, permissible returns on equity, and the other relevant cost categories. Sufficient

flexibility is incorporated for revisions as experience with tariff regulation is gained. The principles governing

tariff determinations are intended to assure power sector participants of the opportunity to recover all

prudently incurred costs and to earn sufficient revenue to promote investments and incentivize improvements.

With two exceptions, the draft tariff regulations create a general prohibition against cross-subsidies. Existing

cross-subsidies from non-household to household customers are required by the draft tariff regulations to be

phased out gradually.

Investment, Power Procurement and Resource Acquisition Regulations. The draft regulations regarding

investments, power procurement and resource acquisitions are intended to help ensure power sector

participants obtain the resources and facilities required to satisfy their respective service obligations at lowest

reasonable cost, and promote efficient and coordinated planning for the power sector. Acknowledging

implementation difficulties associated with these objectives, the Electricity Rules require the MOEP to develop

a forecasting methodology and guidance thereon to be applied by power sector participants, and to annually

prepare a National Power Development Plan with which the investment, power procurement and resource

acquisition plans of power sector participants must be demonstrated to be consistent.

Competitive Tender Regulations. The draft regulations on competitive tenders and solicitations set forth a

bidding regime alled a “ iss halle ge, hi h is designed to put unsolicited projects up for competitive bid;

whereby such projects can be awarded to a party other than the original proponent of the project provided the

winning bidder pays compensation to the proponent equal to the amount of compensation the proponent

would have had with the MOEP. Eligible projects are required to have been assessed by the MOEP and then

designated for development by competitive tender.

ERC Procedural Regulations. The draft ERC procedural regulations essentially combine into a single document

the rules related to the ERC that were omitted from the final version of the Electricity Rules submitted to

Parliament. There is no doubt as to the likely effectiveness of these draft regulations had the ERC been given a

role in performing regulatory tasks. These draft procedures have limited significance as long as the ERC remains

uninvolved in regulation. However, once the ERC assumes some regulatory responsibilities, these draft

regulations will again become of paramount importance.


Preparation of the Rural Electrification Law

The Myanmar National Electrification Plan (NEP) sets forth the commitment to achieve a 100% household

electrification rate by 2030, but with less than one-third of households electrified to date, this is a daunting

challenge. To address this challenge, this Project required the preparation of a draft Rural Electrification Law.

Efforts to draft the Rural Electrification Law focused on reforms to promote and accelerate rural electrification

by most notably; identifying a government institution to lead rural electrification efforts, increasing the grid-

based electrification efficiency and allowing private sector participation, supporting the implementation of

mini-grids, and designing sustainable household electrification programs.

It is recommended that an institutional structure be established to coordinate government funding to support

rural electrification. As part of this structure, a government institution should be established to receive all

government funds for electrification, and through which all government financial support would be dispersed.

The new Rural Electrification Law should specify the sources of that funding and how those funds are intended

to be used. Finally, to enable debt financing of off-grid electrification projects by local communities and the

private sector, serious consideration should be given to the creation of a government corporation to finance

rural electrification projects at concessionary rates. Ideally, both national and international funding sources

would be allocated to this corporation, which would then extend financing to projects based upon established

criteria.

Two types of electrification programs to promote private sector participation in rural electrification should be

endorsed by the new Rural Electrification Law. The first is a Small Power Producer and Distributor program

whereby private investment in mini-grids and off-grid generation is encouraged and promoted by relaxed

regulatory requirements. A prerequisite for success of such a program is permitting the prices charged to

consumers served by very small and off-grid power projects, such as mini-grids, to exceed the regulated prices

charged to consumers connected to the national grid. The second is a Distribution Sub-Franchises and

Subcontractors program, which focuses on accelerating the rate of grid connections by using sub-franchises and

subcontracts to attract private investments in new or upgraded distribution networks.


Chapter 1

Introduction

1.1 Background

1.1.1 Project Scope: The Government of the Union of the Republic of Myanmar recognized that the laws and

rules governing the Myanmar power sector (the Electricity Act, 1948, as amended in 1967, the

Myanmar Electricity Law, 1984, and the Electricity Rules, 1985) needed revision to address the

challenges and difficulties facing the Myanmar power sector.

1.1.2 The Government of the Republic of the Union of Myanmar, therefore, requested the assistance of the

Asian Development Bank (ADB) and the Government of Norway to assist the Ministry of Electric Power

(MOEP) to prepare the legal instruments needed to enhance the legal and regulatory framework for

the Myanmar power sector. The objective of this project was for the regulatory framework to reflect

current international standards and to create an enabling framework for introducing an electricity

regulator and corresponding institutional arrangements.

1.1.3 Consulting Team: On 20 February 2014, the ADB and DFDL Thailand executed a contract whereby the

DFDL Consulting Team, consisted of Mr. Robert Fitzgibbons (International Regulatory Expert and Team

Leader), Ms. Thida Aye (National Regulatory Expert), Mr. John Diecker (International Power Engineer)

and Ms. Tan Tan Win (National Power Engineer), was appointed to advise and assist the Government

of the Republic of the Union of Myanmar to establish an effective legal and regulatory framework for

the Myanmar power sector and to assist the acceleration of rural electrification the P oje t . In

order to enhance the substance of the MOEP tariff regulations to be prepared, International Economist

William Derbyshire was added to the project team. In addition, Mr. Ah Lonn Maung, a senior Myanmar

lawyer with DFDL who worked for many years with the Union Office of the Attorney General in

Myanmar was, for health reasons, substituted for Ms. Thida Aye partway through the Project.

1.1.4 Project Commencement: The DFDL Consulting Team commenced performance of the Project on 3

March 2014, as required by the Terms of Reference (TOR), within 15 calendar days following the ADB

issuance of the Notice to Proceed on 25 February 2014. This report covers all works performed between

the date of the Notice to Proceed and final expiration of the ADB Contract for the Project on 28 February

2016.

1.1.5 Original Contract Term: According to the TOR, this Project was divided into three phases. Phases One

and Two were to be completed within 12 calendar months from the date of issuance of the Notice to

Proceed. Phase Three was initially planned to commence after the draft Rural Electrification Law had

been completed.

1.2 Terms of Reference

The complete text of the Terms of Reference (TOR) for this Project is attached hereto as Appendix A.

The following summarizes the performance tasks that were required to be performed by the DFDL

Consulting Team under the TOR.

1.2.1 Phase 1 - Task 1: Review of existing ADB materials, including works under the regional TA for Enhancing

Effective Regulation of Water and Energy Utilities and to conduct workshops to present and assess


relevant regulatory reform models potentially applicable in Myanmar. The work performed included

the following:

1.2.2 Review of the ADB s M a a E e g “e to I itial Assess e t, the Ele t i it A t as a e ded in 1967), the Myanmar Electricity Law (1984), Electricity Rules (1985), the draft electricity law 2013, and

other government plans; and to undertake research on existing electricity law and regulatory

structures;

1.2.3 Based on item (a), to prepare presentation materials for consultations, subsequent discussions, and

workshops involving civil society stakeholders, government officials, and development partners to

highlight 3- possi le egulato efo odels f o the egio , e.g., f o the Lao People s De o ati Republic, Malaysia, Thailand, and Viet Nam, and to present an appropriate model for Myanmar

government officials to consider, if needed;

1.2.4 Incorporation of provisions for the draft Electricity Law, such as (i) overall control and operation of

electricity in the country; (ii) establishment of an electricity regulator; (iii) private sector participation

in both large-scale generation and small-scale off-grid projects for rural electrification; (iv) cross-border

power trading, (v) third-party access to the grid; (vi) Permits for private sector participation and

contractual arrangements between the government, operators, and service providers; and (vii) a review

of themes such as public–private partnerships, community participation in electricity supply as part of

renewable energy, feed-in tariffs, demand-based management, and energy efficiency; and

1.2.5 To hold consultations and subsequent discussions and workshops with civil society stakeholders,

government officials, and development partners regarding electricity sector issues to ensure that their

views were taken into account when considering appropriate policy measures.

1.2.6 Phase 1 - Task 2: Review of e isti g ate ials o M a a s e e g se to , esea h of other relevant

materials, and to conduct workshops to assess possible models of rural electrification for Myanmar to

propose a new rural electrification law and corresponding implementing regulations. The work

performed included the following:

1.2.7 Review of ADB reports and energy sector assessments and to undertake background research on rural

ele t ifi atio odels i B azil, the People s ‘epu li of Chi a, the Lao People s De o ati ‘epu li , the Philippines, and Viet Nam. Based on this review and research work, to conduct a workshop to

highlight two or three possible models of rural electrification that may be appropriate in the Myanmar

context;

1.2.8 Once the government selected a rural electrification model, draft the regulations and implementing

guidelines for rural electrification;

1.2.9 To enable local authorities to invest in small grids and to enable rural electrification within their

franchise areas, or to allow private companies to invest in localized generation and distribution; and

1.2.10 To propose a new rural electrification law and corresponding implementing regulations suitable to

Myanmar.

1.2.11 Phase 2 – Task 1: Phase 2 covered the preparation of the implementing regulations for a revised

Electricity Law and draft Rural Electrification Law; development of a competitive power market as a


long-range goal; and identification of institutional arrangements and roles for the location, structure,

and staffing of the Electricity Regulatory Commission (ERC).

1.2.12 To assist the Ministry of Electric Power (MOEP) in preparing the implementing regulations to facilitate

implementation of the revised Electricity Law; including translation into the local language; various civil

society consultations; and subsequent discussions and workshops involving civil society stakeholders,

government officials, and development partners to meet the requirements of the government and

Parliament.

1.2.13 Phase 2 – Task 2: To assist the MOEP in preparing the implementing regulations for the proposed Rural

Electrification Law, including translation into the local language; and to hold civil society consultations

and subsequent discussions and workshops involving civil society stakeholders, government officials,

and development partners to meet the requirements of the government and Parliament.

1.2.14 Phase 2 – Task 3: To discuss the appropriate transparent regulatory reform model in long-range terms,

this included the following issues:

1.2.15 The purpose of the law, i.e., to govern and establish a framework for the supply of electric power; and

the principles of the law, including operations in the electricity industry and activities of Permits in the

provision of electricity services; the establishment of favourable conditions for investments in, and

commercial operation of, the electric power industry; regulation of the supply of electric power;

promotion of the rights of consumers to receive reliable and adequate power services at reasonable

cost; establishment of competition; the granting of rights and obligations; the penalizing of suppliers

and consumers of electricity, the public, and land owners in relation to electricity and supply facilities;

establishment of the ERC; establishment of a rural electrification agency of Myanmar, if needed, or to

suggest other appropriate structures to promote rural electrification and regulate third party access to

the transmission network; contractual arrangements between the government and state-owned

enterprises or provincial bodies; environmental and social considerations; and the use of land.

1.2.16 The framework for electric power supply and services, including the designation of an authority for

policy making; the use of primary energy sources; the regulatory responsibilities of the ERC; the

operational responsibilities of the MOEP (generation), the Yangon Electricity Supply Board, the

Electricity Supply Enterprise, and the Myanmar Electricity Transmission Enterprise, and any permitted

independent power producer; the overall basis for power conservation; and policy and regulation of

the supply of electric power services throughout Myanmar.

1.2.17 Institutional arrangements necessary for undertaking electricity operations and the roles and

responsibilities between the central government and provincial and local authorities as applicable.

1.2.18 Institutional arrangements for the establishment of the ERC as an independent regulatory agency, with

transparency (public disclosure requirements); public participation (in regulatory decision making);

accountability (to Parliament and through reports); and credibility, legitimacy, and integrity. The ERC

was to have rights and obligations to regulate access to electricity the service quality of electricity

providers; transmission tariffs; mechanisms for electricity pricing decisions; licensing, including the

issue, revision, revocation, or denial of Permits; accounting and reporting; efficiency; financial

performance; investment and maintenance; equity (affordability, access, and quality); environmental

sustainability, and was to include as required any renewable energy issues; and market composition

and competition.


1.2.19 Third-party access to the electricity transmission network and principles for permitting private sector

participation in electricity generation.

1.2.20 Phase 3: Phase 3 covered the drafting of implementing guidelines including the proposed location,

staffing, and budget, as well as regulations for the institutional arrangements necessary for the

establishment of the ERA. Phase 3 was to commence after the draft rural electrification law had been

completed and preliminary requirements for establishing the ERC had been identified.

1.2.21 The implementing guidelines and regulations were to include a tariff-setting formula and tariff structure

for different categories of consumers; procedures for granting and issuance of Permits, conditions for

the granting and removal of Permits; the management of grid codes; the rights and obligations of

electricity providers and users; consumer complaints; theft and illegal connections; connections and

disconnections; safety and technical standards; competition in generation; renewable energy and

demand and supply-side management for utility operators; requirements for major electrical work,

including maintenance; licensing of electricians, including the establishment of offenses and penalties;

rights to access generators and end-use s p ope t ; t a spa e a d dis losu e sta da ds; a d othe matters relevant to the Electricity Act 1948.

1.3 Work Effort and Product

1.3.1 A total of 26 person-months of consultancy inputs were envisaged to complete Phases 1 and 2 of this

project, comprising of 13 person-months of international consultant inputs and 13 person-months of

national consultant inputs. The work scope, schedule and program implemented by the DFDL

Consulting Team followed the work program set forth in the original tender proposal and memorialized

in the TOR with two exceptions.

1.3.2 Expedited Efforts on New Electricity Law: At the time the DFDL bid proposal was submitted to ADB, it

was projected that at least three to six months would be required for the DFDL Consulting Team to

participate meaningfully in the development of the new Electricity Law. However, by the time the DFDL

Team commenced performance of this project on 3 March 2014, a draft of the new Electricity Law had

already been prepared and submitted to Parliament. In fact, MOEP management thought that

enactment of the new Electricity Law was imminent and would take place within the next few weeks.

1.3.3 Gi e the ad a ed state of the Pa lia e t s o side atio of the d aft Ele t i it La , the ADB a d the Myanmar Ministry of Electric Power (MOEP) decided that the work on identifying the deficiencies

of the draft Electricity Law should be given the highest priority with suggested revisions thereto to be

completed within one month from project commencement. The DFDL Consulting Team provided its

comments and made a presentation on the major deficiencies of the draft Electricity Law to the MOEP

and ADB at the kick-off meeting for this project held on 17 March 2014. In October 2014 the new

Electricity Law was enacted, and was virtually identical to the draft Electricity Law that the DFDL

Consulting Team had commented upon the preceding March.

1.3.4 ADB determined that the DFDL Co sulti g Tea s performance of work related to the draft Electricity

Law as set forth in Phase 1-Task 1 and Phase 2-Task 3 of the TOR was satisfactorily completed upon the

enactment of the new Electricity Law. The new Electricity Law, as enacted, is attached hereto as

Appendix B.

1.3.4 Impediments to Efforts on Rural Electrification: DFDL s effo ts o the ‘u al Ele t ifi atio La were

originally expected to start in June 2014 with recommendations as to content of new law and subject


matter of its implementing regulations to be prepared by the end of September 2014. However,

performance of this task was handicapped by the low priority placed on this task by the MOEP and the

failure of the Government to satisfy its commitment made in November 2014 to designate a

counterpart within the Government to work with the DFDL Consulting Team.

1.3.5 Despite this context, the DFDL Consulting Team prepared and delivered to MOEP in February 2015 a

memorandum setting forth the DFDL recommendations for the content of the new Rural Electrification

Law and a draft of the new law. The ADB shortly thereafter concluded that drafting the implementing

regulations for a new Rural Electrification Law was not practical since the MOEP and the Government

had not decided on the substance of the new law.

1.3.6 Due to the foregoing factors, the ADB in late February 2015 deemed DFDL performance of work related

to rural electrification as set forth in the TOR (Phase 1-Task 2) and Phase 2-Task 2) to have been

satisfactorily completed. Nonetheless, to address the questions and comments from the ADB received

by the DFDL Consulting Team in September 2015, the foregoing work product was revised as of October

2015 and is attached hereto as Appendix C.

1.3.7 Despite the foregoing tasks having been deemed complete by the ADB, to reignite interest in the rural

electrification efforts of the DFDL Consulting Team and the draft Rural Electrification Law, it was

suggested by the ADB that a Rural Electrification Workshop be held for the relevant government

ministries and other stakeholders. MOEP considered the timing of the workshop, planned for 25

February 2016, to be inappropriate due to the then transition phase from the old to the new

government. The workshop was deferred.

1.3.8 First Contract Extension: Due to unforeseen delays in scheduling meetings with and receiving required

approvals from MOEP regarding the Electricity Rules, there was not enough time during the original 12

month contract term to complete work on the Electricity Rules. In addition, the MOEP focus on Phase

3 efforts to prepare the regulations required to establish an effective regulatory framework for the

Myanmar power sector was indeed initiated as the original term of this Project was drawing to a close

in March 2015.

1.3.9 After the MOEP, ADB and the DFDL Consulting Team reached agreement as to the need to prioritize

the preparation of certain key regulations, the Director General (DG) of the Department of Electric

Power (DEP) requested the ADB contract with DFDL to be extended until 30 September 2015 to assist

the MOEP in finalizing the Electricity Rules, and in ensuring that the preparation of the key regulations

is completed.

1.3.10 Work on the Electricity Rules was completed in July 2015 and submitted in late November 2015 for

review and approval by the Parliament. The Electricity Rules as submitted to Parliament in November

2015 are attached hereto as Appendix D.

1.3.11 Second Contract Extension: The contract term was extended for an additional five months until 28

February 2016 to ensure the completion of all work, including key regulations, by 31 December 2015

and the completion of the rural electrification workshop by 28 February 2016.

1.3.12 Items 1-8 of Appendix E set forth the remainder of the work products required by the TOR, which include

the six key regulations addressing performance of the most important regulatory tasks that the Steering

Committee has reviewed and found acceptable (Items 1-6), and the two further regulations whose


preparation was requested by the Steering Committee but subsequently deemed not of immediate

interest (Items 7-8).

1.4 References, Definitions and Capitalized Terms

1.4.1 This report is made with reference to the various deliverables, including memorandum and draft rules

and regulations, which were produced by the DFDL Consulting Team in its performance of the Project.

Copies of the relevant key deliverables are attached as appendixes hereto.

1.4.2 Unless otherwise specifically defined in this report, capitalized terms shall have the meaning ascribed

thereto in the deliverable with reference to which the relevant sections of this report are made.


Chapter 2

Preparation of New Electricity Law (Phase 1 – Tasks 1 & 2)

2.1 Initial Assessment

2.1.1 As oted a o e, due to the ad a ed state of the Pa lia e t s o side atio of the d aft Ele t i it Law, the DFDL Consulting Team was directed by the ADB and MOEP to give top priority to identifying

the deficiencies of the draft Electricity Law and to recommend revisions thereto. The DFDL Consulting

Team was given one month to complete this task. Initially, the proposal submitted by the DFDL

Consulting Team in relation to the performance of the Project expected that three to six months would

be needed to develop consensus as to the content of the new rules and regulations by which (i) the

new Electricity Law would be implemented; (ii) the Electricity Regulatory Commission would be

established, and (iii) the shortcomings in the draft Electricity Law warranting redress.

2.1.2 To evaluate the strength and weaknesses of an electricity law, it is important to consider the subject

law from several perspectives. First, the subject law should be evaluated for consistency with the

Go e e t s poli o je ti es ega di g further power sector reforms. Second, the subject law should

be reviewed to determine whether it provides the legal basis for the intended power sector reforms.

Third, the subject law needs to be reviewed to determine whether it establishes a regulatory framework

and a regulatory institution that are consistent with international best practices.

2.1.3 Importantly, the DFDL Consulting Team had to perform their first assessment of the draft Electricity

Law before being able to access, review and digest the written materials on the Myanmar power sector

and the status of power sector reforms referenced in the TOR. As a result, the draft of the new law was

unable to be evaluated for consistency with government power sector policies and its provision of the

legal bases for further power sector reforms. The initial assessment of the draft Electricity Law

therefore focused exclusively on whether the legal and regulatory framework to be established by the

draft law satisfied i te atio al est p a ti es.

2.1.4 International Best Practices: Regulation and regulatory institutions are generally viewed as those

features of regulatory regimes which promote:

2.1.5 Transparency. Transparency refers to regulatory features that enable regulated entities, consumers

and the general public to observe the processes and procedures by which regulatory decisions are made

and understand the basis for the regulatory actions taken.

2.1.6 Regulatory Independence. Regulatory independence means that responsibility for regulating the power

sector is given to a government institution with technical capabilities that is not a political institution or

part thereof, and is otherwise insulated from political directives and pressures.

2.1.7 Comprehensive Scope. The scope of the regulation must be sufficiently broad so that the regulatory

institution is able to protect against monopolistic abuses by those power sector entities with captive

customers, such as the national transmission entity, distribution entities and retail power suppliers.

Such abuse can arise in a variety of forms, including setting prices above competitive levels, reducing

costs by reducing the quality of maintenance and on-site inventory of spare parts, or by means of

engagement in non-core businesses with losses being passed through to consumers. The regulatory

institution must have the tools to protect against abuse in whatever form it takes.


2.1.8 Predictability. Predictability means that power sector participants, whose interests can be affected by

regulation, are able to predict the results of regulatory actions and decisions with reasonable certainty.

Such predictability is generally accepted as a prerequisite for obtaining meaningful private sector

participation in power sectors. Absent predictability, the risk of regulatory uncertainty may impede

private sector investment.

2.1.9 Accountability. The fact that regulatory institutions should be independent does not mean that they

are not accountable for their regulatory actions and decisions. Such accountability provides power

sector stakeholders with confidence in the quality of regulatory decisions.

2.1.10 Globally, it is now commonly accepted among power sector entities, governments and international

bilateral and multilateral organizations that regulatory frameworks that include the foregoing

characteristics operate more effectively and with greater private sector confidence and public support.1

2.2 Major Identified Shortcomings

2.2.1 Applying the forgoing, the DFDL Consulting Team identified major failures of the draft Electricity Law to

conform to international best practices. The DFDL Consulting Team summarized these deficiencies in

an annotated version of the draft Electricity Law the D aft with its comments thereon set forth in a

cover memorandum. See Items 1 and 2 of Appendix F. Most notably:

2.2.2 Misallocation of Regulatory Responsibilities and Policy Formulation. The Draft contradicts international

best practices by assigning all regulatory tasks and responsibilities to MOEP and not the regulatory

authority. Thus, regulation is to be performed by an institution that is not independent and is subject

to political objectives, pressures and directives.

2.2.3 Insufficient Scope of Regulatory Authority. The Draft only expressly authorizes the MOEP to perform

two key regulatory tasks: permitting (licensing) of power sector entities to participate in the Myanmar

power sector and the determination of power sector tariffs. However, these two regulatory tasks are

not sufficiently comprehensive to provide the MOEP all of the regulatory tools required to prevent all

forms of potential monopolistic abuse in the power sector.

2.2.4 Overly Broad Breadth of Regulation. Electricity Related Business is defined very broadly in the Draft

and could result in power sector regulation being extended to virtually all persons whose business

involves some element of the electric power industry. As defined, power sector regulation would apply

to businesses that provide products and/or services which are not monopolistic in nature, including

companies which perform feasibility studies, sub-contractors that perform EPC related services, and

those companies that design and manufacture electrical equipment used to generate, transmit and/or

distribute electric power.

2.2.5 The wide breadth of power sector regulation that will result from the broad definition of Electricity

Related Business is not consistent with the international best practice of limiting power sector

regulation to businesses that are monopolistic (transmission and distribution) or operate within non-

competitive markets (generation). Companies that are not monopolistic in nature or which otherwise

operate within a competitive environment should not be subject to such regulation.

1 “ee Best P a ti es Guide: I ple e ti g Po e “e to ‘efo pu lished the I stitute of I te atio al Edu atio a d the Regulatory Assistance Project on behalf of the US Agency for International Development (2000).


2.2.6 No Requirements Regarding Regulatory Process and Procedures. Transparency of regulation may be

limited by the failure of the Draft to address the processes and procedures by which regulatory actions

and decisions are taken by the MOEP and the Electricity Regulatory Commission (ERC).

2.2.7 Insufficient Specification of Standards and Criteria. To promote transparency, predictability and

accountability most legal and regulatory regimes set forth pre-established and well-publicized

standards that govern important regulatory decisions and actions. The transparency, predictability and

accountability of the regulatory regime for Myanmar will be undermined by the failure of the new

Electricity Law to include such standards. The one exception to this is the standard set forth for tariff

determinations in Section 3(f) of the Draft, which requires tariffs to be consistent with the modern age.

2.2.8 Inadequate Details Regarding Permitting. Clause 16 and the remaining clauses thereafter of the Draft

do not set forth any licensing standards, requirements or processes by which permitting decisions are

to be made. Similarly Clause 17 of the draft Electricity Law does not set forth any factors to be taken

into account when determining the length of the permit terms for different types of electric power

services and other electricity-related works.

2.2.9 Potentially Insufficient Authority to Regulate Power Tariffs. The efe e e to the o su e in Clause

34 of the Draft is problematic in that it may too narrowly limit the types of tariffs that are subject to

MOEP regulation. An Electric Power Consumer is defined by the Draft as, a person, who obtains and

consumes e lectr ic power in accordance with the existing laws, hi h is more commonly defined

globally as a retail consumer. By inserting this term in this provision, the authority to regulate tariffs

under the Draft would appear to be limited to the tariffs charged only to retail customers.

2.2.10 Yet there are other monopolistic services for which tariffs will require regulation; including power sales

from generation plants not made under competitive circumstances, transmission and interconnection

services, bulk power sales to the distribution entities, and, once retail competition becomes realistic,

distribution wire services. The legal and regulatory framework to be implemented for the Myanmar

power sector should include a mechanism by which MOEP is able to regulate and revise the tariffs for

all monopolistic electric power service.

2.2.11 Absence of Requirements Regarding Revisions to Power Tariffs. Clauses 34 and 35 of the draft Electricity

Law provide for revisions to power tariffs. These provisions are appropriate because tariffs for

monopolistic electric power services must evolve to reflect changes in the costs of providing such

services. One of the hallmarks of a successful regulatory framework is a process and procedures for

revising tariffs that provide power sector entities, electricity consumers, the financial community and

the general public confidence that revisions to tariffs will be made on a principled basis by means of a

transparent and predictable process for which the institution regulating tariffs is accountable. However,

the draft Electricity Law does not set forth any details or requirements regarding the revision of tariffs.

The requirements, process and procedures by which power tariffs are to be revised are not addressed

by the Draft.

2.2.12 Consistency of Regional, State and Local Tariffs with MOEP Regulated Tariffs. Clause 35 of the draft

Electricity Law authorizes, through coordination with the MOEP, Region and State governments,

Leading Body of Self-Administered Divisions, and Self-Administered Zones to prescribe the electricity

rates for power generation and distribution in their respective regions under their own arrangements

for regional electric power systems. This provision gives these governmental institutions the ability to

establish tariffs for electric power generation and distribution that are specific to their respective


regions. This grant of authority suggests that these governmental institutions can establish tariffs that

are different from and inconsistent with the electricity rates for consumers that are currently uniformly

applied across Myanmar. The draft Electricity Law does not address how the coordination of tariff

determinations is to be achieved.

2.2.13 Limited Details on Formation and Operation of Regulatory Institution. The aspiration to transparency

and predictability of the regulatory regime for Myanmar will be undermined by the failure of the Draft

to set forth key institutional arrangements required to establish and manage the operations of

regulatory institutions, which include the qualification for and appointment of regulators, processes

and procedures for reaching regulatory decisions, and the procedures for handling different types of

regulatory filings.

2.2.14 Failure to Address Private Party Rights to Acquire Land. Clause 10 of the draft Electricity Law authorizes

government institutions to acquire land and to construct and extend transmission and distribution

facilities. However, Clause 10 and the rest of the draft Electricity Law does not address how privately

owned companies are to acquire land required for power projects or to construct and extend

transmission and distribution facilities which, notwithstanding intended private ownership, are for the

benefit of the public.

2.2.15 This is a significant discrepancy in the treatment of government institutions and the private sector that

could become problematic now that the private sector has been permitted to invest in generation,

transmission and distribution facilities.

2.2.16 Absence of Appellate Process and Forum. The Draft is weak on measures to hold regulatory institutions

accountable for regulatory actions and decisions. Accountability is most effective by means of judicial

appeals or other similar processes. The provision for appeals in Chapter 15 of the draft Electricity Law

is limited to appeals of decisions regarding payment of damages and compensation under Chapter 14.

The draft Electricity Law does not provide for appeals against other regulatory decisions and actions to

be taken by the MOEP and the ERC.

2.2.17 The Draft does require regulatory actions and decisions of the MOEP to be submitted to the Union

Government for approval. The need to obtain such approval and the latitude of the Union Government

to reject actions and decisions taken by the MOEP can be characterized as a form of appeal that ensures

the accountability of the MOEP. However, this arrangement is not sufficient because such reviews of

MOEP regulatory decisions and actions are taken by the Union Government (the Cabinet), which is a

political institution that is highly likely to review regulatory decisions and actions based upon political

objectives and pressures.

2.3 Reactions to Identified Shortcomings

2.3.1 MOEP: The annotation and memorandum on the deficiencies of the draft Electricity Law were delivered

and presented to the MOEP and ADB at the kick-off meeting for this Project held on 17 March 2014 in

the MOEP offices. Although the Deputy Minister of MOEP appeared to be sympathetic to the need to

address these deficiencies through revisions to the draft law, we understand that it was ultimately

difficult for the MOEP to propose any significant revisions to the draft law to Parliament due to the

imminence of its enactment.

2.3.2 The Deputy Minister of the MOEP observed that the only way to make changes to the draft law at this

late date would be for the ADB and the other donor organizations to talk directly to members of


Parliament to explain why the changes were needed, and the consequences likely to result if the draft

Electricity Law is not revised.

2.3.3 ADB: The DFDL Consulting Team presented the results of its analysis of the draft Electricity Law to the

meeting of the Electric Power Sector Working Group (consisting of representatives of ADB, the World

Bank, IFC, and JICA) held at the MOEP on 19 March 2014. The analysis of the draft Electricity Law

commanded significant attention among the donor organizations in attendance.

2.3.4 As a result of this attention, Mr. Chai-nai Chong from the ADB then requested that Mr. Fitzgibbons and

Mr. David Butcher, another ADB-provided consultant for MOEP, prepare a presentation for key

members of the Parliament regarding necessary revisions to the draft Electricity Law. It was agreed that

only the most necessary revisions would be proposed to Parliament. The Parliament presentation was

provided to the MOEP and ADB on 22 March 2014. A copy is included herein as Item 3 of Appendix F.

2.3.5 IFC: Mr. Fitzgibbons and Ms. Thida Aye met with representatives of the IFC to obtain the views of its

representatives on the draft Electricity Law. The IFC representatives concluded that the draft Electricity

Law contained significant deficiencies and consideration was required of the need for revisions.

2.3.6 The deficiencies of greatest concern to the IFC included: (1) the specification of a principle for tariff

determinations that is difficult to understand and with little bearing on cost recovery and power sector investments; (2) the failure to address the appropriate circumstances for suspension or revocation of

power sector permits; (3) the absence of any details as to the service obligations of the Yangon

Electricity Supply Corporation (YESC) and its rights to procure power from the Myanma Electric Power

Enterprise (MEPE) and other power sources; (4) the failure to address revisions to power sector

Permits; and (5) the lack of an appeal process by which regulatory decisions could be challenged.

2.4 Review of Subsequent Drafts of New Electricity Law

2.4.1 The DFDL Team translated, reviewed, and commented upon two further drafts of the new Electricity

Law before it was ultimately enacted in October 2014. See Items 4-6 of Appendix F. A memorandum

summarizing the deficiencies of the two additional drafts was delivered to the MOEP and ADB on 19

September. See Item 7 of Appendix F. Both drafts were substantively virtually identical to the draft first

reviewed by the DFDL Consulting Team in March 2014.

2.4.2 Ultimately, the deficiencies in the Draft that were first identified in March 2014 were carried forward

into subsequent drafts and into the new Electricity Law as finally adopted by the Parliament.

2.5 Analysis and Assessment of New Electricity Law

2.5.1 The enactment of the Electricity Law on 24 October 2014 the Ne Ele t i it La was a significant

achievement given the lack of local experience and familiarity with economic regulation and regulatory

institutions. The new Electricity Law is a big step towards the establishment of an effective legal and

regulatory framework for the Myanmar power sector.

2.5.2 Notable Advances of New Electricity Law:

The DFDL Consulting Team identified the following key advances in the New Electricity Law:


a. Acknowledgement of the importance of regulation by its mandate to establish the Electricity

Regulatory Commission (ERC);

b. Sections 8(c) authorizes the MOEP, Region and State governments to regulate the permitting of

electricity related businesses and tariff determinations;

c. Section 8 also provides the legal basis for the corporatization and privatization of government

power sector enterprises, such as the Electricity Supply Enterprise (ESE) and the Myanma Electric

Power Enterprise (MEPE). With the approval of the Union Government, Sections 8(c) and (e)

provide for the conversion of government enterprises first into electric power supply boards,

thereafter into electric power supply corporations, and finally converted into a public-owned

corporation to operate commercially.

d. Clarifies the jurisdictional boundaries between the MOEP, Region and State governments, with

Region and State governments responsible for the regulation of power projects no larger than 30

MW and not connected to the national grid;

e. Authorizes the MOEP to establish standards for power sector entities;

f. Establishes a permitting regime to control the entry and exit of participants in the Myanmar power

sector;

g. Sections 12, 13 and 14 authorize the MOEP and other permitting institutions to supervise, issue and

revoke permits to local and foreign investors that desire to engage in Electricity Related Works;

h. Section 16(a) requires the MOEP and other government institutions, in their deliberations as to

whether or not to issue a Permit, to examine applicants based upon their performance and financial

capabilities, and the prospects for the issuance of Permits to foster competition;

i. Section 22(a) requires any Persons issued with Permits to take responsibility for damages and

injuries which, according to the law, are a result of their own negligence;

j. Section 38 renders the MOEP decisions final and conclusive as to the results of inspections for

compliance with electrical norms;

k. Section 41 grants MOEP the right, with the consent of the Union Government, to prescribe

electricity rates for consumers connected to national grid and for Region or State governments to

prescribe the electricity rates for electric power generation and distribution in their respective

regions not connected to the national grid;

l. Section 50 requires a Person issued with a Permit to not sell, mortgage, lease, exchange, or use any

other method to transfer the Permit or the whole or part of Energy Related Works for which the

Permit was issued without the permission of MOEP or other relevant permitting institutions; and

m. The MOEP has the right to take a number of administrative actions if the Permit holder breaches

the conditions contained in the Permit or any order or directive issued by the relevant ministry or

is convicted of having committed any offence under this law.


2.5.3 Limited Content of the New Electricity Law:

2.5.4 Generally, although the content of the new Electricity Law is more limited than is usual for electricity

laws, the Electricity Law nonetheless establishes a solid and workable foundation able to support the

issuance and application of rules and regulation that will provide context otherwise missing from the

Electricity Law itself.

2.5.5 As long as the content of the Electricity Rules are consistent with the spirit of, and not contrary to, the

substance of the new Electricity Law, and is ot i o siste t ith the go e e t s po e se to reform objectives, adding regulatory requirements and content in the Electricity Rules and

implementing regulation should not raise any objections.

2.5.6 The limited content and broad breadth of the Electricity Law provides certain advantages in using the

Electricity Rules and implementing regulations to add to the legal and regulatory framework for the

Myanmar power sector omitted from the Electricity Law, and to address other shortcomings as

identified by the DFDL Consulting Team in the rounds of review and comments on the three drafts of

the Electricity Law.

2.5.7 The limited content of the Electricity Law reduces the probability that the content and regulatory

features being added by the Electricity Rules are contrary to the substance of the new Electricity Law.

Also, the breadth of the Electricity Law will likely ensure that any content or regulatory features being

added to the Electrical Rules will be related in some fashion to topics included within the scope of

matters relevant to the Electricity Law.

2.5.8 Remaining Deficiencies in New Electricity Law:

2.5.9 The DFDL Consulting Team has determined that all of the deficiencies of the Electricity Law identified

in 2014 were able to be remedied through the Electricity Rules and implementing regulations able to

be issued by the MOEP with two notable exceptions.

2.5.10 The first exception is the assignment by Section 3 of the Electricity Law of all regulatory tasks to MOEP

and not the ERC. Although the problems with this misallocation of regulatory responsibilities may be

able to be mitigated by means of adequate drafting of the Electricity Rules, such responsibilities are

unable to be transferred to the ERC until such time as the Electricity Law is either repealed or revised

to permit such a transfer.

2.5.11 The absence of a transfer mechanism is notable given that the explanation that was most often

articulated by the MOEP management in support of the misallocation of regulatory responsibilities was

that the ERC would be unable to properly perform such regulatory tasks in a timely fashion due to lack

of required expertise, experience and resources in general. Although the foregoing explanation is a

reflection of a practical current reality, the eventual accrual of relevant regulatory experience and

expertise by the ERC should result in the regulatory responsibilities shifting from MOEP to the ERC.

Nonetheless, the Electricity Law does not allow such a transfer.

2.5.12 The second exception is the requirement for MOEP regulatory actions and decisions to be submitted

for approval by the Union Government. Although problems may be able to be mitigated if the Union

Government is willing to refrain from using regulation to pursue political objectives and using political

pressure to influence regulatory decisions, appeals to the Union Government remain the sole avenue

for redress unless the Electricity Law is revised.


Chapter 3

Electricity Rules to Implement New Electricity Law and to Establish

Electricity Regulatory Commission

(Phase 2 - Task 1)


3.1.1 Phase 2 of the TOR required the DFDL Consulting Team to assist the MOEP to prepare the rules to

implement the New Electricity Law and to establish the Electricity Regulatory Commission. However,

the New Electricity Law provided little to no guidance on the desired structure of the Myanmar power

sector or the desired design of the regulatory framework, as set forth in the TOR of this project, other

than mandating the establishment of a regulatory commission with no regulatory responsibilities,

requiring the permitting of power sector participation, and the assignment of regulatory tasks including

permitting and tariff determinations to MOEP.

3.1.2 The draft MOEP Action Plan provided some additional, yet still insufficient, details as to those power

sector reforms intended to be implemented. The outputs of the draft MOEP Action Plan included

implementation of independent power producer (IPP) schemes using methods similar to neighboring

countries (i.e., competitive bidding); preparation of the Energy Development Plan and Energy Security

Policy; efficient and environmentally friendly use of energy resources; p es i ing p i i g structure

(tariffs) for electricity, petroleum products and metals; and the preparation of transmission and

distribution codes.

3.2 Defining the Content of Electricity Rules

3.2.1 A consensus therefore was needed as to the content for the Electricity Rules intended to implement

the New Electricity Law and to better establish the foundation for an effective regulatory regime for

the Myanmar power sector. Consensus was forged based upon: (i) an identification of the institutional

and regulatory features required to support expected power sector reforms; (ii) an endorsement of

specific power sector reforms; (iii) the acceptance of regulatory features based upon international best

practices to redress deficiencies in the Electricity Law as previously identified; and (iv) requirements to

govern the establishment the ERC.

3.2.2 To obtain the guidance needed in order to identify the regulations and institutional arrangements

required to implement the future Electricity Law and establish the ERC, the DFDL Consulting Team first

reviewed relevant literature, reports and assessments prepared by or for MOEP, the ADB, the World

Bank, the IFC and other international institutions. By obtaining a better understanding of the issues

facing the Myanmar power sector, the potential content for the Electricity Rules can be identified for

discussion with the Steering Committee, by focusing on the legal support, institutional arrangements

and regulatory framework needed to support implementation of power sector reforms.

3.2.3 The results of this review and analysis are set forth in a memoranda entitled Characteristics of and

Problems Facing the Myanmar Power Sector Ap il , a d Po e “e to ‘efo s a d ‘e uisite La s, ‘egulatio s a d I stitutio al A a ge e ts Ma . See Items 8 and 9 of Appendix F.

3.2.4 Annex A of Memorandum "Power Sector Reforms and Requisite Laws, Regulations and Institutional

Arrangements identified several problems for the Myanmar power sector that warrant governmental


attention. Annex B of this Memorandum identified the specific reforms that the Myanmar government

has endorsed or which have been often employed internationally to address the comparable challenges

and problems. Annex C of this Memorandum identified the regulations and institutional arrangements

required to support the reforms identified in Annex B.

3.2.5 In regards to the allocation of power sector responsibilities across governmental institutions, interviews

were conducted with the Ministry of Mines; Ministry of Finance; Ministry of Science and Technology;

Ministry of Livestock, Fisheries and Rural Development; Ministry of Environment, Conservation and

Forestry; Department of Electric Power; ESE; and private subcontractors of ESE in Mandalay. Minutes

of these interviews are set forth in Item 10 of Appendix F.

3.2.6 The foregoing information was presented to the Steering Committee to focus discussion on the

institutional and regulatory features required to implement the power sector reforms that global

experience suggests are highly relevant for Myanmar. The specific reforms together with the

institutional and regulatory features employed internationally to support such reforms, and our

recommendations to the Steering Committee are set forth in the following Table:

Table 3.2 Common International Reforms and Supportive Regulatory Arrangements

Problems

Common

International

Reforms

Support for Institutional

and Regulatory

Arrangements

DFDL Recommendation

Government

managed

Vertically

Integrated

Power Sector

Separate

management,

policy

formation, and

regulation.

Restructure so

generation,

transmission,

and

distribution

services are

performed by

separate

entities.

Implement

reforms to

foster

competitive

markets.

No strategic plan for

restructuring the power

sector set forth by the

Union Government.

The Electricity Rules should establish a

permitting program and process that will

reinforce and support the structural changes

already being implemented, but which can

implement more dramatic structural reforms if

desired.

No need to address more aggressive structural

reforms and the creation of competitive

markets.

Insufficient

Revenue to

Support

Power Sector

Require cost

reflective

tariffs

Tariff regulation requiring

cost reflection, cost

recovery, and a return on

Electricity Rules to establish tariff policy

requiring tariffs to permit cost recovery and

returns on investment sufficient to finance

investments in new assets. Also must include


Problems

Common

International

Reforms


and Regulatory

Arrangements

DFDL Recommendation

investment sufficient to

finance sector.

principles and standards for tariff

determination.

Establish

transparent

and

predictable

process for

determining

and revising

tariffs.

Well defined regulatory

process for tariff

determinations that

provides for public

participation.

Electricity Rules should establish transparent

and predictable process for review, approval

and revisions to power sector tariffs.

Establish

process that

provides relief

quickly.

Allow tariff increases

requested to become

effective subject to

refund.

Electricity Rules or tariff regulations should

permit proposed tariff increase to become

effective subject to refund.

Permit market

based rates

when

determined

competitively.

Permit and/or require use

of competitive tenders for

new generation.

Establish competitive

generation, wholesale,

and retail power markets.

Allow or require use of competitive tenders

to acquire electric power from new

generation.

No need to address creation of competitive

wholesale and retail markets, but framework

must be flexible for further reforms in future.

Diversion of

Domestic

Power Supply

for Export

Require

government

approval to

export electric

power or

natural gas

abroad.

New Electricity Law or

Union Regulations should:

(1). Designate MOE,

MOEP or ERC as

responsible to review and

approve power exports;

(2). State the applied

criteria to approve power

exports (e.g. consistent

with NEP and National

Power Supply Plan).

Pre-specified and publicly available criteria to

approve power exports as authorized by MoE,

MOEP, or ERC.

Export applications should be part of

formulating NEP or National Power Supply

Plan or considered individually at highest level.

Approvals of individual exports should

require certification that export is consistent

with NEP or National Power Supply Plan.


Problems

Common

International

Reforms


and Regulatory

Arrangements

DFDL Recommendation

Inefficient

and Non-

Commercial

Management

of Power

Sector

Corporatization

and

privatization.

Separate utility activities

performed by

government into separate

legal entities charged with

operating on a

commercial basis.

Ownership of such

entities should be

exercised by MoF.

Management of

operations to be

separated and insulated

from political institution.

Imposition of

requirements to foster

commercial management;

such as a Board of

Directors and financial

audits.

Eventual privatization in

whole or in part.

Electricity Law provides legal basis for

converting Ministry departments into power

supply boards and then to corporations able

to be privatized.

Electricity Rules to assign MoF to exercise

government ownership interests in such

entities.

All MOEP departments responsible for power

sector operations should be corporatized.

Electricity Rules to endorse managerial

compensation based on commercial

performance of power sector enterprises.

Inefficient

Operations

Formulate,

apply, and

enforce

performance

standards and

operating

requirements

in accordance

with

international

best practices.

Regulatory institution to

Impose performance and

technical standards

Electricity Rules to authorize ERC to establish

and enforce performance and technical

standards.

Electricity Rules to establish process and

procedures for (1) filing of service complaints

with the ERC, and (2) ERC investigations into

violations of legal and regulatory

requirements.

Electricity Rules to authorize MOEP to impose

sanctions for violations

Sub-optimal

Mix and

Amount of

Generation

Resource

Require

forecasting of

load growth

and least-cost

power

procurement

and resource

acquisition.

Power sector entities to

be required to engage in

least-cost power supply

planning consistent with

international best

practices.

Union or Ministry

Regulations to set

requirements applicable

to least-cost power

Power sector entities to be required by

Electricity Rules to prepare forecasts and least

cost resource investment plans on annual and

multi-year basis for MOEP approval.

Such plans to set out the needed power

supply, investments, and other major

expenditures required to satisfy service

obligations in Permits.


Problems

Common

International

Reforms


and Regulatory

Arrangements

DFDL Recommendation

supply planning and to

submit results to the

ministry.

MOEP to evaluate whether plans are

consistent with National Power Supply Plan

and NEP.

Reticence of

private sector

investment

due to

concerns

Issue policies

on IPPs and

private sector

participation.

Government to set IPP

policy that addresses

private sector concerns

with power sector

investments; particularly

in permitted security

packages, royalties, and

guarantees.

No need for Electricity Rules to address

private sector concerns. Government has

authority to address such concerns, and they

are beyond the authority of MOEP.

Electricity Rules can permit/require use of

competitive tenders to procure power from

private generation projects. Setting forth

requirements for competitive tenders with

models will expand private participation.

Cumbersome

and confusing

Project

approval

Process

Simplify

project

approvals and

negotiations,

clarify legal

uncertainties,

and reduce red

tape

One-Stop shop;

streamline approval

process, endorse security

arrangements, and

confirm corporatized

entities are government

liabilities.

No need for the Electricity Rules to address

project approval process. Government has

authority to address such concerns and most

beyond the authority of the MOEP.

3.3 Regulatory Features from International Best Practices

3.3.1 After obtaining an agreement from the Steering Committee on the content of the Electricity Rules, the

DFDL Consulting Team then turned its focus to obtaining a consensus on what the Electricity Rules

needed to address to establish the ERC. To prepare for this discussion and in appreciation of the forms

of regulation employed in other countries, on 20 June 2014 the DFDL Consulting Team, together with

Mr. David Butcher, an ADB consultant advising MOEP on commercial and management matters, made

a presentation to the Steering Committee on possible structures for the Myanmar power sector. See

Items 25 and 26 of Appendix F.

3.3.2 To achieve the foregoing objective, the DFDL Consulting Team focused on the power sector regulatory

institutions of five relevant regional countries. Specifically, the DFDL Consulting Team reviewed and

analyzed over eighty different features of the regulatory framework and regulatory institutions of

Cambodia, Malaysia, Pakistan, Thailand and Vietnam. The results of this review are set forth in a

memorandum entitled a Comparison of Key Features of Regional Power Sector Regulatory Institutions

dated 20 June 2014. See Item 11 of Appendix F. This memorandum compared, contrasted and made

recommendations as to the regulatory and institutional arrangements and practices drawn from the

regulatory frameworks of these five countries.


International Best Practices Presentation and Consultation

3.3.3 As required by Phase 1-Task 2 of the TOR, during 2-4 August 2014 the DFDL Consulting Team gave a

presentation to the Steering Committee on the power sector legal and regulatory frameworks of the

foregoing five relevant countries, identification of the features thereof which reflect international best

practices and recommendations as to the appropriate regulatory model for Myanmar.

3.3.4 Following this presentation the DFDL Consulting Team spent three days meeting with the DG of the

Department of Electric Power (DEP) and the Steering Committee to discuss the advantages and

disadvantages of regulatory and institutional features used in other countries as recommended in the

Me o a du o the Comparison of Regional Regulatory Models and Selection of Preferred Model .

3.3.5 After extensive discussion, a consensus developed as to the desired content of the Electricity Rules

regarding the establishment of the ERC. The DFDL Consulting Team prepared and distributed to MOEP

and the Steering Committee a summary of the many features agreed upon as appropriate content of

the Electricity Rules. The Steering Committee tentatively concluded that approximately forty of the

regulatory features drawn from the international examples should be implemented in Myanmar. Most

notably:

Table 3.3 Key International Regulatory Features

Authority of

Chairman

The Notification to establish the ERC to define responsibilities of a strong Chairman.

Chairman to: (1) set agenda and schedule meetings, (2) preside over meetings with the

casting vote, (3) appoint Commission Officers and the Administrative Manager, (5)

prioritize work efforts, (6) be responsible for management and administration of

Commission, (7) prepare annual budget for consideration by ERC Members.

Staggered and

Fixed Terms

The Notification to establish fixed and 5 year staggered terms, limited to two

appointments.

Removal Removal to require: (1) factual determination of conviction of a criminal offense, (2)

mental or physical incapacity, (3) serious violation of any employment or stock

ownership restriction, and (4) abandonment of duties.

ERC Internal Structure and Procedures

Regulatory

Decisions

Electricity Rules to require all regulatory decisions to be in writing and set forth legal

and factual basis for decision.

Meetings The Notification to establish the ERC to specify: (1) quorum requirements, (2) votes

e ui ed fo affi ati e de isio s a d a tio s to e take , a d Chai a s asti g ote, (3) requirements regarding meeting notices, including public notices, and (4) whether

meetings must be open to public.

Internal

Organization

and Procedures

Electricity Rules should specify: (1) officers, (2) ERC Departments, (3) Member support

staff, and (4) minimum procedural requirements.

Regulatory Tasks


Tariffs

Tariff Principles Electricity Rules should specify pinciples required to be applied in tariff determinations.

Retail Tariffs Deviations/abandonment of uniform national retail tariffs needs to be permitted.

Permitting

Permit

Conditions

Electricity Rules to define initial, service obligations and specify minimum conditions to

be included in each type of Permit.

Issuance Electricity Rules to set forth: (1) the types of Permits able to be issued by MOEP upon

recommendation of ERC and the service obligations associated therewith, (2)

standards for issuance, denial revision, and revocation of Permits, and (3) mandatory

Permit conditions, including types of performance standards for each type of Permit.

Modifications Electricity Rules to set forth the grounds for and requirements governing MOEP/ERC

unilateral revision of Permits, including compensation payment for divested assets.

Power Procurement and Investments

Power

Procurement

and Contracts

Electricity Rules to prohibit: (1) procurement of power from new IPPs unless the result

of competitive power solicitations programs (approved by MOEP upon ERC

recommendation), and (2) recovery of power procurement cost if incurred pursuant to

power purchase agreements not approved by MOEP.

Power Imports

and Exports

Electricity Rules to require approval of MOEP for power exports and imports. MOEP to

consider: (1) the safety, reliability and stability of national electric system, and (2)

impact of proposed import or export on consumers and national electricity security.

National Power

Development

Plans

Electricity Rules to require MOEP to prepare multi-year national power development

plan for submission for the approval of the Cabinet, which shall be annually updated by

MOEP and approved by Cabinet annually.

Investment and

Power

Acquisition Plan

Electricity Rules to require national transmission and distribution power sector entities

to each prepare an annual investment and development plan for approval of MOEP.

Financing

Financing

Activity

Electricity Rules to require national transmission and distribution power sector entities

to obtain MOEP approval of major financing activity.

Service Quality

Standards

Electricity Rules to require performance standards for generation, transmission and

distribution that are to be included as conditions in Permits.

Corporate Activity

Mergers and

Corporate

Reorganization

Electricity Rules to prohibit reorganizations, mergers and major acquisition or sale of

assets or securities without prior approval of MOEP.


3.3.6 Importantly, the discussions held on 2-4 August 2014 recognized that there were significant

inconsistencies between the draft Electricity Law and the content to implement the new Electricity Law

and establish the ERC on which there had been preliminarily agreement. The DFDL Consulting Team

was instructed to address these inconsistencies when drafting the Electricity Rules.

3.4 Electricity Rules Drafting Effort

3.4.1 The first complete draft of the proposed Electricity Rules reflecting the preliminary agreements reached

was delivered to the MOEP on 31 August 2014. The Myanmar translation of these draft regulations

was delivered to the MOEP on 1 September 2014. A revised memorandum summarizing the content

the draft Rules with references to the preliminary agreements reached with the DG and the Steering

Committee on the appropriate content for such rules is set forth as the Agreed Content Referenced to

Draft Regulations to Establish Electricity Regulatory Commission 4 September 2014). See Item 12 of

Appendix F.

3.4.2 Per the instruction on 3 November 2014 from Deputy Minister U Aung Than Oo (DG of DEP), U Khin

Maung Win (Deputy DG of DEP), Daw Mi Mi Khaing, Mr. Jong-Inn Kim (ADB) and Mr. Rehan Kausar

(ADB), the DFDL Consulting Team met each week with the DG and Steering Committee to conduct a

line by line review and make revisions as required to finalize the first draft of the Electricity Rules

beginning on 8 November 2014 and continuing through 16 January 2015. The summary of this meeting

on 3 November 2014 is set forth as Item 13 of Appendix F.

3.4.3 During this review period, the DFDL Consulting Team met with the DG and the Steering Committee nine

times to review and revise in detail the draft Electricity Rules. Minutes of each such work session are

attached hereto as Item 14 of Appendix F.

3.4.4 On 9-11 and 15-16 January 2015, the DFDL Consulting Team met with the DG and the Steering

Committee to finalize the draft Electricity Rules. Over these five days, the Steering Committee and the

DFDL Consulting Team reviewed the draft Electricity Rules rule by rule using the updated side-by-side

comparison (Item 15 of Appendix F) of the English and Myanmar versions of the draft Rules to address

any outstanding questions, concerns and requests for clarification.

3.4.5 On 18 January 2015, the DFDL Consulting Team delivered to the DG the finalized English version of the

draft Electricity Rules. A copy of this revised draft is attached hereto as Item 16 of Appendix F. The

Steering Committee then internally revised the Myanmar version of the Electricity Rules and submitted

the changes to the DFDL Consulting Team on 22 January 2015 the I itial Ve sio . In addition, the

DFDL Consulting Team also prepared a memorandum detailing suggested further revisions to the Initial

Version. See Item 17 of Appendix F.

3.4.6 The Initial Version of the Electricity Rules was then distributed to other Union government ministries

and institutions for their review and comment, including the Office of the Attorney General, the

Ministry of Finance, the Ministry of Energy, the Ministry of Industry, and the Ministry of Science and

Technology.

3.5 Initial Version of Draft Electricity Rules

3.5.1 The Initial Version comprehensively addresses the implementation of the new Electricity Law and the

establishment of the Electricity Regulatory Commission. The Initial Version is based largely on the

tentative conclusions reached by the DG and the Steering Committee in early August 2015 and seeks


to address key deficiencies of the new Electricity Law that were earlier identified; most notably that the

revised draft of the new Electricity Law vested all regulatory functions with the MOEP and not with the

Electricity Regulatory Commission.

3.5.2 Importantly, other than the deletion of the provisions referencing the ERC, the establishment and

organization of the ERC, and ERC involvement in regulation, all of the other provisions of the Initial

Version as discussed below were included in the final version of the Electricity Rules that have been

submitted to Parliament for approval as required for issuance.

3.6 Implementation of New Electricity Law

3.6.1 Clear Specification of Ministry Power and Functions. The Initial Version significantly expanded the

number of regulatory tasks to be performed by the MOEP far beyond the tasks assigned to the MOEP

by the new Electricity Law. In addition to permitting and tariff determinations, the MOEP will most

notably become responsible for:

a. Review and approval of forecasts and multi-year least-cost power development plans that maintain

consistency with the current national electric power development plans;

b. Review and approve investment, power procurement and resource acquisition plans based on

po e se to e tities espe ti e least cost investment and power procurement plans;

c. Review and approval of financial activities and organizational affairs to protect against such

activities and affairs adversely impacting the capabilities of power sector entities to satisfy

their respective obligations;

d. Promulgate technical and performance standards for each category of power sector entity;

e. Resolve grievances against and disputes involving permitted power sector entities;

f. Enforce legal, regulatory and contractual requirements and prescribe fines for violations of such

requirements; and

g. Propose and/or implement market rules and revise Permits as required to effect power sector

structural reforms as directed by the Union Government; subject to the payment of appropriate

compensation for any divested assets.

3.6.2 Other Ministry Responsibilities: The MOEP is also required to:

a. Develop methodologies for forecasting and least-cost planning and provide guidance to power

sector entities in this regard; and

b. Prepare multi-year national electric power development plans for submission for the approval by

the Union Government; such plans are to be based o MOEP s o least-cost planning and are to

focus on the investments required to ensure long term balance between reliable electric power

supply and electric load.


3.6.3 Requirements for Written Regulatory Decisions: Regulatory actions and decisions required for the

MOEP are to be in written form and are to explain the legal and factual basis in support of the

regulatory action or decision being taken.

3.6.4 ERC Integration into Regulatory Process: The Initial Version seeks to redress the misallocation of

regulatory responsibilities and tasks to MOEP by increasing the regulatory responsibilities of the ERC

without altering the assignment of all regulatory tasks to MOEP. The Initial Version requires decisions

of the MOEP to be based upon recommendations (in the form of draft decisions) prepared and

proposed by the ERC. The MOEP may only approve, reject or revise such recommendations due to (i)

inadequate legal and/or factual justification; (ii) misstatement or omission of material facts; (iii)

misinterpretation of legal and regulatory requirements; (iv) arbitrary reasoning; or (v) otherwise being

contrary to the public interest. The processing of filings and all other work required to perform

regulatory tasks will be performed by the ERC.

3.6.5 Power Sector Permitting Regime: The Electricity Law contemplates a permitting process by which market

entry will be controlled by the MOEP, but the Electricity Law provides few of the details required to

establish a workable and effective permitting regime.

3.6.6 Mandatory Permits. The Electricity Rules prohibit persons from engaging in Electricity Related Works

without having obtained a Permit. The Electricity Rules provide clear jurisdictional boundaries between

the authority of the MOEP as a Union ministry, State and Region governments, and local governments.

3.6.7 Types of Permits. The Initial Version identifies the types of Permits that the MOEP is able to issue. For

each type of Permit able to be issued by the MOEP, the Electricity Rules (i) specify the content of Permit

applications and the eligibility requirements applicable thereto; (ii) specify permit content; (iii) define

the applicable service obligations; and (iv) vests the MOEP with the authority to revise Permits

unilaterally in order to implement power sector reforms, as directed by law or the Union Government,

provided that compensation must be paid for divested assets.

3.6.8 Eligibility. Permits are only to be issued to persons that have demonstrated their capabilities to comply

with the requirements of their respective permit. The Initial Version and the final version of the draft

Electricity Rules specified the factors to be considered by the MOEP in evaluating permit applications,

including (i) the business, engineering, managerial and technical capabilities and expertise; (ii) the

financial wherewithal of applicants; (iii) the capability of applicants to comply with permit conditions

and all applicable legal and regulatory requirements; (iv) the capability of applicants to comply with

prudent utility practices, the grid code, the distribution code, and applicable industry codes of conduct

and industry standards.

3.6.9 In both the Initial Version and the final version of the draft Electricity Rules, MOEP is authorized to deny

Permits if it concludes that the investments associated with the subject Permit application are not

justifiable in view of the needs of the power sector or where the applicant has not demonstrated

capacbility for the proposed facility or system.

3.6.10 Financial Security. The Initial Version permits the MOEP to require a bond or other form of financial

security necessary to ensure satisfaction of service obligations set forth in pursuant to this l aw and

the conditions of the Permit, including the payment of Permit fees.


3.6.11 Applicable Laws. The Initial Version requires all Persons issued with a Permit to comply with applicable

Law and regulatory requirements, all applicable environmental requirements, applicable codes and

performance standards.

3.6.12 Suspension and Revocation. The Initial Version allows for MOEP to suspend and revoke Permits in order

to enforce the stated requirements. Where suspended or revoked, Permitted Persons may be required

to undertake actions to maintain continuous operations for the equipment and facilities.

3.6.13 MOEP Regulations. The Initial Version authorizes MOEP to issue regulations regarding the applications

for, issuance of, revisions and modifications to, and suspensions and revocation of Permits. These

regulations are to specify the form and content of Permit applications, filing requirements, evidentiary

support, documentation needs, and procedures specific to licensing.

3.6.14 Tariff Regulation: The Electricity Rules provide greater detail as to the processes and requirements

applicable to tariff determinations by the MOEP.

3.6.15 Filing of tariffs. Every Permitted Person shall have tariffs for its permitted power sector activity

approved by the MOEP with the consent of the Union Government. Tariffs proposed shall become

effective sixty (60) days after being filed with the ERC subject to refund of the amount by which the

tariff filed for approval exceeds the tariff approved by the Union Government.

3.6.16 Tariff Principles and Standards. The Electricity Rules require that tariffs are to be based upon the

expressly stated principles and standards, most notably:

a. Allow recovery of all costs prudently incurred to meet the demonstrated needs of their

customers;

b. Result in rate of returns on the power sector capital investments commensurated to that

earned on investments of comparable risk, and promotes investments in equipment and

facilities required for Permitted Persons to satisfy their respective service obligations;

c. Allow deviation from nationally uniform tariffs in order to, to the extent feasible, reflect the

full cost of providing electric power and other electric power related services to classes of

customers with similar service requirements;

d. Reflect the quantity of peak, average, or overall usage of electric power at different times,

seasons, time of day or year, the types of services purchased, or other similar factors; and

e. Provide reasonable transition periods to implement tariff increases in order to minimize

public opposition to such adjustments.

3.6.17 Non-Cost Based Tariffs. The Electricity Rules permit MOEP approval of non-cost based tariffs

determined by negotiations within competitive power markets or circumstances; such as tariffs

established by a bona fide competitive power solicitations approved by the MOEP.

3.6.18 Notice of General Rate Changes. Applications for tariff changes must include a comparison of the

existing tariff design and the proposed tariff design on the basis of the categories of consumers likely

to be affected by a tariff modification.


3.6.19 ERC Recommendations. Electricity Rules permit the ERC to make recommendations to the MOEP

regarding tariffs. Ministry shall issue regulations regarding the applications for tariff approvals, the

review and consideration of proposed tariffs and proposed tariff methodologies. The regulation shall

specify the form and content of tariff applications, filing requirements, evidentiary support,

documentation needs, and procedures specific to tariffs.

3.6.20 Investment and Power Acquisition Programs. Electricity Rules require Permitted Person with captive

customers to prepare annually their respective investment and power acquisition programs and to file

them to obtain MOEP approval.

3.6.21 Power Purchases and Procurement. Regulations to be issued by the Ministry shall specify the

requirements for obtaining approval of power purchase agreements and competitive power solicitation

programs. Approval of power purchase agreements must be consistent with least cost procurement of

power supplies to be approved by the MOEP.

3.6.22 Prohibitions. The Initial Version prohibited Permitted Persons from (i) purchasing electric power from

new IPPs unless such purchases are the result of competitive power solicitations programs approved

by the Ministry; and (ii) recovery of power procurement costs if incurred pursuant to power purchase

agreements not approved by Ministry.

3.6.23 Financing Arrangements. Financing activities are required by the Initial Version to be made prudently

and on commercially reasonable terms and conditions.

3.6.24 Corporate Mergers and Restructuring. Prior approval of the MOEP will be required by the Initial Version

to undertake a merger or a major acquisition or sale of facilities.

3.6.25 Performance Standards. The MOEP is required by the Initial Version to prescribe performance

standards for all types of permitted power sector activities. The Initial Version sets forth the types of

performance standards required for each type of Permit. The Electricity Rules also allow MOEP to tailor

project specific standards when the subject projects are unable to meet the generic performance

standards of industry wide applications.

3.6.26 Safety Inspections and Registration. Electricity Rules prohibit major electrical facilities from being

operated unless such facilities have been inspected for compliance with technical and safety

requirements by the Inspection Department of the Ministry of Industry and obtained a compliance

certificate therefrom.

3.7 Establishment of the Electricity Regulatory Commission (ERC)

3.7.1 The Initial Version also sets forth the basic elements of a regulatory framework by which the Electricity

Regulatory Commission can be established. Again, the Initial Version is based largely on the tentative

conclusions reached by the DG and the Steering Committee during the review and discussion of

international experience in early August 2015. For the most part, the DG and Steering Committee

agreed that the following design, structure and regulatory features are warranted to improve the

transparency, independence, effectiveness, predictability and accountability of the Myanmar power

sector regulation.


ERC Structure:

3.7.2 The Initial Version contemplates a multi-member commission with members appointed for fixed five-

year terms that is a separate entity independent from the MOEP and charged with making its decisions

by means of majority votes taken on proposed written decisions at pre-noticed meetings open to public

observation. Decisions by the E‘C efe ed to as the Commission i the I itial Ve sio a d i this section of report) are required to be in writing and to include an explanation of legal and factual basis

for decision.

3.7.3 The Initial Version addresses the (i) location of the ERC within the Union Government; (ii) tenure,

qualifications and appointment of commission members; (iii) decision-making authority and processes,

such as quorum requirements and decisions to be taken by majority vote; (iv) requirements regarding

ERC organization, including authority of the ERC Chairman; (v) requirements to promote the autonomy

and independence of ERC; and (vi) requirements to ensure the accountability of the ERC. More

specifically:

a. Independence and Autonomy. The Initial Version mandates that the ERC shall perform its duties

and functions independent from the Ministry and free from Ministry directives and instructions.

b. Appointment. Appointments are to be made by the President. The Preisdent and the other

Members are to be eminent professionals of known integrity and competence with experience in

law, business, engineering, finance, accounting, economics and/or business management in

regards to the electric power industry of at least fifteen years for the Chairman and ten years for

other Members.

Chairman and other Members may only be removed from office by the President upon a factual

determination by appropriate factual tribunal of (i) a conviction of a criminal offense; (ii) mental or

physical incapacity; (iii) serious violation of any employment or stock ownership restriction; or (iv)

are found to have seriously neglected or abandoned his or her duties.

c. Secretariat. The Secretariat comprises the administrative and professional staff and employees,

physical plant, facilities and equipment required to support ERC activities. The Secretariat provides

professional and technical support for actions and decisions to be taken by the Commission,

including the preparation of recommendations as to regulatory actions that the Commission

proposes to be taken by the Ministry.

d. ERC Departments. The Secretariat shall be organized with departments that shall be the

espo si ilit of offi e s E‘C Offi e s appoi ted a d ho se e at the pleasu e of the Chairman, with a (i) legal department that is the responsibility of the General Counsel; (ii) an

economics department that is the responsibility of the Director General-Economic Policy; and (iii)

an engineering and technical support department that is the responsibility of the Director General-

Technical and Engineering.

e. Accounts. The Electricity Rules authorizes the ERC to open and maintain bank accounts in its own

name.

f. Budget Process. The annual budget for the activities and operating expenses of the ERC shall

prepare, for each financial year, the annual budget of its anticipated operating costs that sets forth

all of the E‘C s e pe ted e e ues a d e pe ses.


g. Funding Sources. The operations and activities of the ERC shall be funded, at least initially, from (i)

grants from the Union Government in the form of funds annually authorized and appropriated by

the Parliament; and (ii) fees and fines collected from Permits by the ERC as prescribed from time to

time.

h. ERC Reports. The Initial Version requires the Commission to prepare and submit to the Union

Government a report, within a defined period following the end of its fiscal year, on the conduct if

its activities and the state of the Myanmar power sector that identifies the ownership, operation,

management, efficiency and control of electric power facilities, amount of transmission and

generation capacity, present and future demand of electricity, cost of electric power services

and other matters relating to electric power services.

3.7.4 ERC Administration, Process and Procedures:

a. Authority of Chairman. The Chairman shall (i) set the agenda and schedule of the Commission

meetings; (ii) preside over Commission meetings with a casting vote; (iii) hire the Executive

Secretary and the ERC Officers; (iv) prioritize work efforts; (v) be responsible for management and

administration of the Secretariat; and (vi) prepare the annual ERC budget for consideration and

approval by the Commission.

b. Meeting Notices. The Chairman shall provide each Member and the public at least ten days advance

written notice of the date, time and location of each meeting of the Commission, together with a list

of all matters to be considered by the Commission at each such meeting.

c. Quorum. A majority of five of the seven Commission Members shall constitute a quorum. Members

can attend meetings of the Commission in person, by phone or by proxy. Properly executed proxies

must be delivered to the Executive Secretary prior the beginning of Commission meetings.

d. Affirmative Votes. Decisions of the Commission shall be taken by a majority of the Members

present at properly convened Commission meetings. In case of a tie vote, the Chairman or the

designated presiding Member will cast the deciding vote.

e. Meeting Minutes. Minutes shall be kept of all Commission meetings in a form that has been

approved by the Commission.

f. Commission Decisions. All orders, determinations and decisions of the Commission, including

the recommendations proposed to the Ministry by the Commission, shall be in writing and shall (i)

set forth the legal and factual basis in support of such decisions; and (ii) register and record the

vote cast by the Chairman and the other Members. Members who opposed decisions taken by the

Commission may attach to such decisions their written dissents explaining their opposition.

g. Public Notices and Public Participation. The ERC shall provide written and electronic notices of (i) all

filings, applications and petitions filed with the ERC requesting regulatory actions or decisions to be

taken by the Ministry; (ii) initiation of Permit specific investigations and inquiries; and (iii) the

intention of the Commission to promulgate general orders or rules and regulations of industry-wide

applicability and effect.


h. Public Attendance and Observation. Any meeting or discussion of three or more Members shall be

publicly noticed and open to public attendance and observation.

3.8 Redress of Shortcomings of New Electricity Law

The Initial Version addresses virtually all of the deficiencies identified with the new Electricity Law.

Specifically:

3.8.1 The Initial Version integrates the ERC into the regulatory process by requiring the MOEP to make

regulatory decisions based upon recommendations prepared by the ERC.

3.8.2 Scope of MOEP Regulatory Authority. Concerns were originally raised about the limited scope of the

regulatory authority that has been given to MOEP. The two defined regulatory tasks are not sufficiently

comprehensive to provide the MOEP all of the regulatory tools required to prevent monopolistic abuse

in all of its forms. Concerns with the limited scope of regulation assigned to the MOEP by the Electricity

Law have been addressed by the significant expansion of the regulatory tasks assigned to the MOEP by

the Electricity Rules.

3.8.3 Pre-established Standards to Govern Key Regulatory Decisions. To promote transparency,

predictability and accountability, most legal and regulatory regimes set forth pre-established well-

publicized standards to govern important regulatory decisions and actions. Concerns about such

standards not being included in the Electricity Law have been addressed by the Electricity Rules by

setting forth pre-established standards that will govern regulatory decisions on permit issuances, tariff


investment and resource acquisition, and power procurement and power purchase agreements.

3.8.4 No Requirements Regarding Regulatory Process and Procedures. Transparency of regulation may be

limited by the failure of the Electricity Law to address the processes and procedures by which regulatory

actions and decisions are made by the MOEP and the ERC. As of the date of this report, it does not seem

that the MOEP envisages addressing its internal processes and procedures by regulation.

3.8.5 Inadequate Details Regarding Permitting. The draft Electricity Law does not set forth any standards or

requirements or the process by which permitting decisions are to be made. Concerns about this lack of

details will be addressed by the permitting details provided by the Electricity Rules.

3.8.6 Confirm MOEP Authority to Regulate Tariffs. Confirmation of MOEP authority to regulate all types of

tariffs and not just retail tariffs is provided by the Ele t i it ‘ules o e detailed spe ifi atio of MOEP s responsibilities regarding tariffs.

3.8.7 Requirements Regarding Tariff Revisions. Another hallmark of a successful regulatory framework is the

process and procedures for revising tariffs that provides power sector entities, electricity consumers,

the financial community and the general public confidence that revisions to tariffs will be made on a

principled basis by means of a transparent and predictable process for which the institution regulating

tariffs is accountable. The New Electricity Law does not set forth any details or requirements regarding

revisions of tariffs. However, the Electricity Rules provide some detail as to the process and procedures

by which tariffs are to be revised.

3.8.8 Absence of Appellate Process and Forum. The provision for appeals in Chapter 15 of the draft Electricity

Law is limited to appeals of decisions regarding payment of damages and compensation under Chapter


14. The draft Electricity Law does not provide for appeals of other regulatory decisions and actions to

be taken by MOEP. Instead, all MOEP regulatory decisions are subject to the approval of the Union

Government. This is perhaps the only deficiency identified with the New Electricity Law that cannot be

redressed or mitigated by the Electricity Rules.

3.9 First Electricity Law Workshop

3.9.1 On 25 March 2015 a workshop was held in Naypyitaw, Myanmar to facilitate review and comments on

the draft Electricity Rules from MOEP and other Union Government ministries and institutions. The

presentation made by the DFDL Consulting Team is attached hereto at Item 18 of Appendix F.

3.10 Reaction of Other Union Ministries and Government Institutions

3.10.1 On 9 May 2015, the MOEP held a meeting with the other Union Government institutions to discuss

their respective reviews and comments on the Initial Version. Thereafter, the Steering Committee

reviewed all of the comments received, but few changes were made to the draft Electricity Rules.

3.10.2 The one exception were the comments and suggested revisions proposed by the Ministry of Industry.

The comments of the Ministry of Industry focused on technical and safety inspections of power sector

facilities, electrical appliances and power sector equipment operations and operators. Virtually all of

the revisions proposed by the Ministry of Industry were incorporated into the draft Electricity Rules.

3.10.3 On 15-16 June 2015, the DFDL Consulting Team met with the DG of the DEP to assist him in preparing

for meetings with the MOEP Minister and other government officials on the draft Electricity Rules.

3.11 Second Electricity Law Workshop

3.11.1 A second workshop was held on 6 July 2015 to present the Electricity Law and draft Electricity Rules to

the international donor organizations and government institutions other than MOEP. This workshop

covered presentations by (i) DFDL on summary of the Electricity Law, draft rules and regulations, and

contents of proposed Rural Electrification Law; and (ii) Public Private Partnership consultant Deloitte

on legal concerns by private investors. The presentation given by the DFDL Consulting Team is attached

hereto as Item 19 of Appendix F.

3.12 Final Version of Electricity Rules

3.12.1 On 18 June 2015, the DFDL Consulting Team met with the DG of the DEP to be informed of the results

of the MOEP Mi iste s e ie of the d aft Ele t i it ‘ules. At this meeting the DFDL Consulting Team

was instructed by direction of the MOEP Minister to (i) assign all regulatory tasks to the MOEP for which

it will be solely responsible; (ii) extract the ERC from any involvement in regulatory tasks; (iii) extract

from the draft Electricity Rules all rules involving or referencing the ERC.

3.12.2 As directed by the MOEP Minister, the draft Electricity Rules were revised with all regulatory tasks to

be performed by MOEP and with no involvement on the part of the ERC. All rules regarding the ERC

and its composition, organization, structure, process and procedures have been eliminated from the

Electricity Rules. Rules regarding the ERC were to be separately compiled.


3.12.3 No further action on the separately compiled ERC related rules was taken by the Steering Committee

as they were no longer of immediate importance and were most likely to be finalized by a government

institution other than the MOEP.

3.12.4 In addition to the extraction of the ERC from the Electricity Rules, only two other material revisions

were made to the Initial Version. First, as noted above, the Ministry of Industry made valuable

suggestions as to additional language needed to be added to the Electricity Rules regarding inspections.

The language suggested by the Ministry of Industry has for the most part been incorporated into the

Electricity Rules.

3.12.5 Second, the Initial Version was revised to add three additional types of Permits that the MOEP is

authorized to issue. These three additional Permits are for (i) power exports and imports; (ii) special

purpose transmission facilities; and (iii) distribution and retail supply franchises. For each of these three

new types of Permits, language was added to the Electricity Rules as to the content of permit

applications and the service obligations associated therewith. These changes together constitute the

Fi al Ve sio of the Ele t i it ‘ules.

3.12.6 The Final Version of the draft Electricity Rules was approved by the Union Government and thereafter

submitted to Parliament in November 2015. Under Myanmar law, if the Parliament does not object to

the draft Electricity Rules within 90 days of its receipt of the draft Rules, the Electricity Rules will become

effective.

3.13 Analysis and Assessment

Significance of Electricity Rules:

3.13.1 As described in detail above, issuance of the draft Electricity Rules submitted to Parliament for approval

will constitute a significant step forwards, laying a solid legal foundation for effective power sector

regulation. The Electricity Rules will help establish the basic framework for the regulation of the

Myanmar power sector.

3.13.2 The Electricity Rules will establish a permitting regime through which MOEP will control entry and

participation in the power sector and define the service obligations of each type of power sector

participant. For each type of power sector participant, the Electricity Rules (i) specify the content of

Permit applications and the eligibility requirements applicable thereto; (ii) specify permit content; (iii)

define the applicable service obligations; and (iv) vests the MOEP with the authority to revise Permits

unilaterally in order to implement power sector reforms.

3.13.3 The permitting regime is thus designed to be flexible in order to enable power sector structural reforms

to be easily implemented by MOEP unilateral revisions of Permits. The definitions of respective service

obligations should promote coordination and confirm the structure to which the power sector is to

evolve.

3.13.4 The Electricity Rules significantly expand the regulatory responsibilities of the MOEP and include the

regulation of financial activities and organizational affairs, technical and industry standards, codes of

conduct, the forecasting of load growth, least cost resource planning and investment planning and

resource procurement. The expansion of the regulatory tasks assigned to the MOEP ensures that the

MOEP has the tools it requires to protect against monopolistic abuses in any form.


3.13.5 Transparency of regulation will be fostered by the requirement in the Electricity Rules that all regulatory

decisions of the MOEP be in written form and set forth the factual and legal basis for the regulatory

decisions being rendered. Transparency and predictability will also be promoted by its clarification of

the requirements applicable to specific regulatory tasks and its specification of pre-established

standards to govern all significant regulatory decisions, including permit issuances, tariff


investment and resource acquisition, power procurement and power purchase agreements. These

measures will help to install public confidence that the regulatory decisions of the MOEP will be made

on a principled basis and will increase the transparency of tariff regulation.

3.13.6 Importantly, the Electricity Rules provide greater detail as to the processes and requirements applicable

to tariff determinations by MOEP. The Electricity Rules require that tariffs be based upon expressly

stated principles and standards; most notably to allow recovery of all costs prudently incurred to meet

the demonstrated needs of their customers and that result in rate of returns on power sector capital

investments which promote investments in equipment and facilities required for Permitted Persons to

satisfy their respective service obligations. In addition, tariffs proposed for MOEP approval shall become

effective sixty (60) days after being filed, subject to refund of the amount by which the tariff filed for

approval exceeds the tariff approved by the Union Government.

Remaining Shortcomings:

3.13.7 Notwithstanding the significant benefits that will be achieved by the Electricity Rules as submitted to

the Parliament, there remain a few outstanding shortcomings. Consolidating all regulatory tasks with

the MOEP and eliminating all rules referencing the ERC will result in the process of regulation by MOEP

not itself being subject to any regulation. There are no requirements in the Electricity Rules regarding

the regulatory organization, process and procedures of the MOEP. In other words, the MOEP regulation

is not transparent and could possibly become a black box when viewed from the perspective of power

sector participants and the general public. However, this shortcoming should be addressed in part by

the regulations able to be issued by the MOEP.

3.13.8 As reported above, the draft Electricity Rules submitted to the Parliament for approval addressed

virtually all of the deficiencies identified with the new Electricity Law with two exceptions.

3.13.9 First, the draft Electricity Rules cannot address the absence of an opportunity for meaningful appeals

of MOEP regulatory decisions. The provision for appeals in Chapter 15 of the new Electricity Law is

limited to appeals of decisions regarding payment of damages and compensation under Chapter 14.

The draft Electricity Law does not provide for appeals of other regulatory decisions. Instead, all MOEP

regulatory decisions are subject to the approval of the Union Government. Establishing the opportunity

for such appeals is beyond the legally permissible scope of what can be addressed by the issuance of

rules and regulations.

3.13.10 Second, the draft Electricity Rules submitted to Parliament for approval did not include any mechanism

by which the ERC can become involved in performing regulation in any form. The Initial Version of the

draft Electricity Rules included a requirement for MOEP to render regulatory decisions based on the

written ERC recommendations coupled with the restriction that the MOEP must approve the ERC

written recommendations as its own decision absent misapplication of law or material facts. This

requirement was not included in the final version of the draft Electricity Rules submitted to Parliament,

and this absence resulted in the MOEP being solely responsible for regulation.


3.13.11 However, the absence of this language does not render the MOEP unable to integrate the ERC into the

regulatory process. Indeed, there is nothing in the new Electricity Law or the draft Electricity Rules that

would bar the MOEP from establishing the same working arrangement as would have resulted from the

Initial Version language that was removed from the draft Electricity Rules submitted to Parliament.

3.13.12 This result can be achieved by means of the MOEP requesting the ERC for written recommendations

regarding specific decisions and tasks assigned to the MOEP. Achievement of this result will be best

reached gradually, with requested recommendations proceeding from the easy to the more

challenging. In addition, once established, the capabilities of the ERC can be enhanced by seconding

MOEP employees to this new organization to serve as regulatory staff for reasonable periods of time.


Chapter 4

Preparation of Power Sector Supporting Regulations (Phase 2 – Tasks 2&3 and Phase 3)


4.1.1 The DFDL Consulting Team was charged by the TOR and the extension of the ADB Contract to assist the

MOEP to prepare key high priority secondary regulations that need to be issued in order for regulation

of the Myanmar power sector to become operational.

4.1.2 As the original twelve month term of this Project drew to a close in early 2015, the DG of the DEP

informed the DFDL Consulting Team that the MOEP will continue to need assistance beyond the

expiration of the original contract term in order for the MOEP to finalize the draft Electricity Rules, and

requested the DFDL Consulting Team to start working on the regulations required to be prescribed for

the ERC to become operational.

4.1.3 To assist the MOEP in defining the scope of this effort, the DFDL Consulting Team prepared a list of

seventeen regulations required by the new Electricity Law and, once prescribed, the Electricity Rules.

The DFDL Consulting Team also identified the regulations most likely to be required for the ERC to

become operational and prioritized the order in which such regulations should be prepared. Copies of

these communications are attached hereto as Item 20 of Appendix F.

4.1.4 The ADB agreed to a six month extension of the contract term in order to assist the MOEP to prepare

six sets of prioritized regulations. Specifically, the MOEP and ADB agreed that the DFDL Consulting Team

would prepare the regulations for (i) permitting; (ii) tariff determinations; (iii) competitive power

solicitations; (iv) regulatory approvals of power purchases and power purchase agreements; (v)

regulatory approvals of investments and resource acquisitions; and (vi) ERC internal organization,

process and procedures.

4.1.5 It was agreed that a draft of each regulation would be prepared by the DFDL Consulting Team based

upon relevant international examples and experience and then distributed to the MOEP for line-by-line

review, explanation, discussion and revision; noting that finalization of each regulation would likely

require multiple rounds of MOEP review and revision. Work on the regulations was initiated in early

April 2015 with the DG of the DEP and the Steering Committee directing the DFDL Consulting Team to

give top priority to the preparation of the regulation on ERC internal organization, process and

procedures.

4.2 Revisions Due To ERC Exclusion from Regulation

4.2.1 When the six regulations were selected for prioritized preparation and work on these regulations was

initiated in April 2015, the Initial Version of the draft Electricity Rules was still current, and

contemplated the ERC having a significant role in the performance of regulatory tasks. As such, the

draft regulation on ERC internal organization, process and procedures delivered to the DG of the DEP

and the Steering Committee on 6 September 2015 focused on regulatory features and requirements

intended to enhance the transparency, independence, and accountability of regulation by the ERC. A

copy of this draft regulation is attached hereto as Item 21 of Appendix F.


4.2.2 More specifically, the draft regulation on ERC internal organization, process and procedures addressed

(i) the ERC internal organization; (ii) the process and procedures for accepting and acting upon requests

for regulatory decisions and actions; (iii) allocation of responsibilities across the internal ERC

organization; (iv) the requirements regarding public notices of regulatory proceedings, proposed

decisions and regulatory actions; and (v) the permitted means for public participation.

4.2.3 However, the DG of the DEP and the Steering Committee decided not to pursue the preparation of the

draft regulation on ERC internal organization, process and procedures any further since this draft

regulation was no longer of immediate importance. As with the ERC related rules extracted from the

Final Version of the draft Electricity Rules, the revision of the draft Electricity Rules to assign sole

responsibility for regulatory tasks to the MOEP and to eliminate the ERC from the regulatory process

rendered the draft regulation on ERC internal organization, process and procedures largely irrelevant.

4.2.4 The draft regulation on ERC internal organization, process and procedures and the ERC related rules

extracted from the draft Electricity Rules set forth requirements to govern the ERC regulatory process

a d the E‘C s pe fo a e of egulato tasks, Since there is no ERC regulatory process and the ERC is

not involved in the performance of regulatory tasks, the relevant requirements as set forth in such rules

and regulations have no operative effect. Instead, the focus of the process-related regulations

requiring preparation shifted from the ERC to the MOEP. The scope of the regulations to be prepared

by the DFDL Consulting Team therefore expanded to include regulations on the internal organization,

process and procedures of the MOEP and MOEP filing procedures.

4.3 Status of Supporting Regulations

MOEP Regulations on Filing Procedures:

4.3.1 The Electricity Law and the draft Electricity Rules, once effective, will result in the ERC having no

involvement in the regulatory process, with the MOEP given sole responsibility for all regulatory tasks.

The institutional and procedural requirements included in the draft of the Electricity Rules presented

at the March 2015 First Electricity Law Workshop intended to apply international best practices to

promote transparency, independence, and predictability of power sector regulation. However, the

institutional and procedural requirements recommended focused exclusively on the ERC. These

provisions were dropped from the Electricity Rules without analogous requirements being added to

govern regulation by the MOEP.

4.3.2 To redress this imbalance, the DFDL Consulting Team prepared a draft regulation for the consideration

of the DG of the DEP and the Steering Committee that addressed the internal MOEP regulatory

organization, process and procedures. See Item 1 of Appendix E. It appeared that the details about how

the MOEP will regulate were not considerd as a priority and relevant governmental counterparts did

not give this draft regulation further consideration except for that portion of the draft regulation that

governs the procedures for making filings requesting regulatory action from the MOEP, such as

applications for permits, tariff determinations, enforcement of regulatory requirements, required

regulatory approvals or other regulatory actions.

4.3.3 To reduce complexity, other than for those requirements specific to particular regulatory tasks as set

forth in the relevant regulations, the filing procedures set forth in theses draft regulations are intended

to apply to all MOEP regulatory filings.


The following summarizes the substance of these draft filing regulations.

4.3.4 Definitions. The draft filing regulations attempt to address potential confusion by limiting definitions

to terms not already defined by the Electricity Law and the Electricity Rules. Importantly, the definitions

i lude a defi itio of pu li do u e ts hi h ill e ui e all o -confidential information to be

placed in a public document room to be located at a time at which the public is able to identify and

access such information.

4.3.5 Applications. The draft filing regulations require all requests for regulator action to be initiated by the

filing with the MOEP of an application that satisfies certain specified content requirements. All

applications must:

i. state the name and address of the applicant, the reason for the application, and an

identification of any Permits already issued to such applicant;

ii. include all the documentation and information identified as relevant to the requested

regulation and in other MOEP regulations; and

iii. include a summary of evidence supporting the regulatory action requested.

4.3.6 Content Review and Initiation of Regulatory Proceedings. Upon being filed, the MOEP shall examine the

application to see that it satisfies and conforms to the content requirements applicable to such

application. If incomplete or not in conformity, the application shall be returned to the applicant

together with directions to amend and re-file. If determined to be complete and in conformity, the

MOEP shall accept the application for filing and the regulatory proceeding regarding such application

shall be deemed to be initiated on the date the application is so accepted. See Paragraph 5 and 6 of

Item 1 Appendix E.

4.3.7 Public Notification and Interventions. Importantly, the draft filing regulations provide an opportunity

for interested members of the public to participate in regulatory proceedings. Within ten days of the

date of the acceptance of an application for filing by the MOEP, the MOEP is required to issue a public

notification of such filing. See Paragraph 7 of Item 1 Appendix E. Any person may file a request to

participate in the subject regulatory proceeding within fifteen dates of the date of the public filing

notification. Such requests shall state the reasons for requesting participation and an explanation as

to how such person could be adversely affected by the requested regulatory action or the regulatory

decision that could result. See Paragraph 8 of Item 1 Appendix E.

4.3.8 The applicant is then to be provided an opportunity to respond to such requests for participation.

Within ten days of the last date on which an intervention request was able to be filed, the MOEP shall

determine which members of the public are to be permitted to participate. The draft regulations only

permit participation by those members of the public that could be adversely affected by the requested

regulatory action or potential regulatory decision. See Paragraphs 8(c) and 10(a) of Item 1 Appendix E.

4.3.9 Public Hearings. Also within ten days of the last date on which an intervention request was able to be

filed, the MOEP is to determine whether a public hearing is required. The draft regulations state that

consideration is required as to whether a public hearing is required to arrive at a just and reasonable

result, and that the use of public hearings should be limited to circumstances involving disputes on

material facts. The draft regulations permit the use of a variety of hearing forms. See Paragraph 9 of

Item 1 Appendix E.


4.3.10 The draft regulations specify that the director of the MOEP department to which the subject regulatory

proceeding is assigned shall serve as the presiding officer for any public hearing to be held. The

presiding officer shall determine the form of and procedures for the public hearing and frame the issues

to be addressed in the public hearing and may permit cross-examination. See Paragraphs 10(a), (b) and

(c) of Item 1 Appendix E.

4.3.11 Within twenty days of the public hearing being declared closed, the presiding officer shall submit to

MOEP a written summary of the evidence obtained during the public hearing. Importantly, the

presiding officer will have the benefit of the opinions of parties to the proceeding who may, under the

draft regulations, file their own respective written summaries of the information obtained during the

public hearing within twenty days of the public hearing being declared closed. See Paragraph 10(d) of

Item 1 Appendix E.

4.3.12 MOEP Decisions and Reconsideration Requests. The draft regulations require that the MOEP render

regulatory decisions within 120 days of the date on which the relevant applications were accepted for

filing. See Paragraph 12 of Item 1 Appendix E. Within ten days of a final decision by the MOEP, a party

in the regulatory proceeding may file a request for the MOEP to reconsider its decision. Such a request

must specify in detail the basis warranting such reconsideration. The other parties to the specific

regulatory proceeding shall be afforded ten days to address such request for reconsideration. See

Paragraphs 13(a), (b) and (c) of Item 1 Appendix E.

4.3.13 The MOEP is required by the draft regulations to render a decision regarding the reconsideration

request within thirty days of receipt of the reconsideration request. The MOEP may deny the request

or, if it determines reconsideration is warranted and its decision needs to be revised, the MOEP shall

issue is a new decision setting forth the legal and factual basis in support of such revision. See Paragraph

13(d) of Item 1 Appendix E.

MOEP Permitting Regulations:

4.3.14 The Electricity Law mandates a permitting regime by which market entry into the power sector will be

able to be controlled by the MOEP and the Electricity Rules, and provides many of the details not

addressed by the Electricity Law. The difficulty of structuring the permitting regime is in the need for the

permitting regime to be sufficiently flexible to accommodate the ultimate structure desired for the

Myanmar power sector and support the evolution of the power sector already underway, yet able to be

utilized to implement more dramatic structural reforms that may be pursued by the Government at a

later date.

4.3.15 In this regard, although the Electricity Rules provide a solid foundation for the permitting regime

mandated by the Electricity Law, the Electricity Rules are not sufficient to create a workable and

effective permitting regime.

4.3.16 The Electricity Rules acknowledge and provide for the subsidiary legal instruments required to provide

such details. Indeed, the Electricity Rules authorize the MOEP to issue regulations regarding the

applications for, issuance of, revisions and modifications to, and suspensions and revocation of Permits.

The Electricity Rules require the permitting regulations to be issued by the MOEP to specify the form

and content of Permit applications, filing requirements, evidentiary support, documentation needs, and

procedures specific to licensing.


4.3.17 The DG of the DEP and the Steering Committee expended considerable efforts to prepare the draft

permitting regulations involving at least twelve rounds of review and revision over a period of almost

six months. The final version of the draft permitting regulations with which the DFDL Consulting Team

assisted preparation is attached hereto as Item 2 of Appendix E. The following summarizes, by Part, the

substance of these draft permitting regulations.

Part I- Permit Applications:

4.3.18 Permit Applicants. The draft permitting regulations require applicants for Permits to demonstrate that

they satisfy the requirements of Rule 73 of the Electricity Rules, that is, that they have demonstrated

their capabilities to provide the Electricity Related Works that are the subject of their requested Permit

and are able to comply with all legal, regulatory and Permit conditions applicable thereto. The draft

permitting regulations also require that Permit applicants demonstrate that the plant, equipment and

facilities are consistent with National Energy Power Development Plan. See Sections 5 and 9 of Item 2

Appendix E.

4.3.19 The draft permitting regulations set forth the form for Permit applications and the information required

to be provided for in (i) all Permit applications; (ii) applications for each type of Permit and each type

of Electricity Related Works; (iii) applications involving both existing and new power facilities; and (iv)

applications for each type of power facility, including thermal and hydro power generation,

transmission and distribution. See Paragraphs 6, 7, 8, and Schedules 2, 3 and 4 of Item 2 Appendix E.

4.3.20 Evidentiary support and documentation to include:

a. Evidence of the availability of adequate financial and technical resources to implement successfully

the subject project;

b. Technical and financial proposals for the operation, planning and development of the subject

project; and

c. In the case of a new facility, a feasibility study of the project, setting forth in reasonable detail:

the type, technology, model, technical details and design of the facilities and equipment to be

part of the subject project;

the expected life of the subject project;

the location of the subject project and the outer boundaries within which project facilities are

to be installed and operated;

the type and details of the services proposed to be provided; and

a prospectus.

4.3.21 Application Process and Procedures. In the event that the MOEP intends to deny an application, the

MOEP is required by the draft permitting regulations to give the applicant an opportunity to make a

presentation as to the reasons its application should not be denied. The draft permitting regulations

require that the MOEP makes a decision on Permit applications within 28 days after the date of the

Permit application, provided such period shall exclude any time taken by the applicant to make such a

presentation. See Paragraph 11 of Item 2 Appendix E.

4.3.22 Prerequisites for Permit Issuance. The draft permitting regulations prohibits Permits from being issued

and becoming effective until such time as the applicant has obtained all requisite approvals, and (i) for

generation Permits, execution of a Power Purchase Agreement (PPA) as pre-approved by MOEP; (ii) for


transmission and distribution and distribution franchises, MOEP approval of system improvement,

system development, loss reduction and financing plans; and (iii) for distribution franchises, execution

of a MOEP distribution contract. MOEP approved samples for a thermal PPA and distribution franchise

contract are to be appended to the draft permitting regulations. See Paragraph 12 of Item 2 Appendix

E. The model thermal PPA is to be included, but it is not yet possible to set forth a form of the PPA that

would be acceptable to the MOEP since not a single long term PPA has been executed and successfully

debt financed on a limited recourse basis.

4.3.23 The Electricity Rules will authorize the MOEP to o ditio the issua e of Pe its upo appli a ts provision of financial security to ensure satisfaction of service obligations and other requirements and

conditions as set forth in the Permits. The draft permitting regulations further authorize the MOEP to

require Permitted Persons to post additional security against repetition of the violation of law and/or

regulatory requirements. See Paragraph 32(c) of Item 2 Appendix E.

Part II- Permit Content:

4.3.24 Identity and Authorized Activity. Each Permit is required to identify the identity and main office of the

Permitted Person and the Electricity Related Works in which the Permitted Person is authorized to

engage. See Paragraph 13 of Item 2 Appendix E.

4.3.25 Term, Expiration and Renewal. The draft permitting regulations require Permits to specify the duration

of their term and the permissible bases for obtaining term extensions. The draft permitting regulations

specify different terms for different types of Permits and, for some Permits, the duration of the term

may be required to be revised as the structure of the power sector changes. See Paragraph 14 of Item

2 Appendix E.

4.3.26 Under the draft permitting regulations:

a. the terms of generation permits are to equal the duration of the corresponding PPAs or otherwise

the expected commercial life of the generation plant the subject of such permit;

b. the terms of Permits for transmission and distribution are to be perpetual;

c. the terms of Permits for wholesale power supply shall be perpetual until such time as there is more

than one Permitted Person authorized to supply power at wholesale to Permitted Persons engaged

in retail power supply;

d. the terms of Permits for retail power supply shall be perpetual until such time as the distribution

network business is no longer consolidated with retail power supply;

e. the terms of Permits for imports/exports shall be for the duration of the transaction authorized by

such Permits; and

f. the terms for distribution franchises shall be as determined by the MOEP. See Paragraph 14 of Item

2 Appendix E.

4.3.27 Upon expiration of the Permit term, unless otherwise extended, the original Permitted Persons must

transfer the equipment and facilities that are subject of the Permit to either the MOEP or to a third

party designated by the MOEP. The prior Permitted Person is to be paid compensation for the project


assets transferred either as originally agreed with the MOEP or, in the absence of such an agreement,

equal to the depreciated book value of the transferred project assets.

4.3.28 Service Authorization and Obligations. The draft permitting regulations do not expressly set forth the

service obligations of Permitted Persons other than to require Permitted Persons to engage in

Electricity Related Works on an economical, reliable and continuous basis. Permitted Persons are

permitted to interrupt service in case of theft, non-payment of bills or to address emergencies or

threats to public health, system reliability, or as otherwise directed by the MOEP. See Paragraph 16 of

Item 2 Appendix E.

4.3.29 Instead, the draft permitting regulations provide for the MOEP to issue Permits for Permitted Persons

to grant the exclusive right to engage in the different types of Electricity Related Works within

geographical territories and in accordance with service obligations specified in such Permits. The draft

permitting regulations clearly contemplate the text of Permits to expand and better define the scope

of authorization to engage in Electricity Related Works and the service obligations required of

Permitted Persons under each type of Permit.

4.3.30 To ensure achievement of this expectation, the DG of the DEP and the Steering Committee, with the

assistance of the DFDL Consulting Team, prepared samples for each type of Permit that is to be attached

to the permitting regulations. These sample permits set forth in greater detail the scope of such service

authorizations and obligations. These sample Permits are attached to the draft permitting regulations

as Annexes C through J of Item 2 Appendix E.

4.3.31 The service obligations associated with each type of Permit have been drafted to reflect the services

e ui ed to e p o ided Pe itted Pe so s u de the po e se to s u e t st u tu e a d its

current evolution towards reliance on a single buyer that purchases all generated power, and is the sole

source of wholesale power for multiple distribution companies who have an exclusive right to sell

power to their respective retail consumers. However, the sample Permits also include clauses that

indicate how the service obligations will need to be revised upon the introduction of a competitive

wholesale market with multiple power suppliers competing to sell power to multiple distribution

entities.

4.3.32 General Conditions for All Permits. The draft permitting regulations sets forth legal and regulatory

requirements applicable to all Permitted Persons. All Permitted Persons must (i) obtain MOEP approval

to undertake financings, re-financings and financial restructuring; and (ii) maintain their respective

books and records for the term of their respective Permits. See Paragraphs 19 and 23 of Item 2 Appendix

E.

4.3.33 All Permitted Persons are prohibited from providing Electricity Related Services to any customer on

terms and conditions materially more or less favorable than provided to comparable customers. See

Paragraph 24(a) of Item 2 Appendix E. Permitted Persons are also prohibited from directly or indirectly

having a beneficial interest in other Permitted Persons engaged in Electricity Related Works in which

they are not permitted to engage. See Paragraph 24(b) of Item 2 Appendix E.

4.3.34 The draft permitting regulations also impose certain requirements on Permitted Persons other than

those Permitted Persons engaged in wholesale and retail power supply. These requirements include (i)

the design, operation, maintenance and repair of equipment and facilities in accordance with prudent

utility practices, the grid code, and all applicable laws; (ii) to locate, construct, operate, maintain and

repair power generation so as to not endanger employees and the public health and safety; and (iii) to


develop and implement arrangements to ensure the safety of its operations and the continuity of and

security of electric power from generation facilities. See Paragraphs 20, 21, and 22 of Item 2 Appendix

E.

Part III - Permit Modifications and Revisions:

4.3.35 Discretionary Modifications. The draft permitting regulations allow Permitted Persons and the MOEP

to propose revisions to Permits. Applications for Permit modifications are to set forth the text of the

requested modification, include a statement in support of the requested modification and a statement

as to the impact the proposed modification is likely to have on tariffs, quality of service, and

performance of the Permitted Person. See Paragraphs 25 of Item 2 Appendix E.

4.3.36 The draft regulations allow MOEP to modify Permits if, in the opinion of the MOEP, such modifications,

(i) will not adversely affect the performance of its service obligations by the Permitted Person; (ii) is

likely to be beneficial to consumers; or (iii) is reasonably necessary for the Permitted Person to

effectively and efficiently perform its service obligations. See Paragraph 26 of Item 2 Appendix E.

4.3.37 Mandatory Modifications. The draft permitting regulations authorize the MOEP to revise Permits as

required to effect and reinforce power sector structural reforms approved by the Union Government.

This provision is critically important to providing a permitting regime that can be used to adjust service

obligations to implement power sector structural reforms. See Paragraph 29 of Item 2 Appendix E.

4.3.38 Revisions to Permits and the service obligations, and the imposition of new business prohibitions, could

have significant adverse financial effects on Permitted Persons, such as the required divestiture of

assets. Importantly, the draft permitting regulations provide the foregoing flexibility regarding Permit

modifications without addressing the financial impact of such revisions on those Permitted Persons

whose Permits are revised. The DFDL Consulting Team suggested to include a requirement for

Permitted Persons to be paid compensation for assets required to be divested that would have provided

significant financial protection to Permitted Persons, but such protection has not thus far been included

in either the draft Electricity Rules or the draft permitting regulations.

Part IV- Administration:

4.3.39 Inspections and Investigations. Permitted Persons will be required by the draft permitting regulations

to make their facilities, books and records available for inspection by the MOEP and the General

Inspector during normal business hours upon reasonable advance notice. The draft permitting

regulations will require Permitted Persons to cooperate with any investigation initiated by the MOEP,

including the provision of any information requested by the MOEP. See Paragraph 31 of Item 2

Appendix E.

4.3.40 Enforcement. In regards to enforcement, Section 38 of the Electricity Law only states that the MOEP

may take the following administrative actions against Permitted Persons who fail to adhere to

applicable regulations or fail to adhere to any orders and directives or is found guilty of committing any

offence under this law: (i) impose a fine; (ii) suspension of a Permit for a limited time; and (iii) Permit

revocation.

4.3.41 The Electricity Rules state little more than the Electricity Law, but importantly, Section 98 of the

Electricity Rules prohibits the MOEP from taking any regulatory enforcement action until the subject


Permitted Person is informed in writing of the alleged violation and is requested to provide an

explanation.

4.3.42 In accordance with Rule 99 of the Electricity Rules, the MOEP, upon recommendations of the ERC and

with the approval of the Union Government, is to issue regulations that prescribe regulatory

enforcement procedures. As per this Rule, the draft permitting regulations are to provide the subject

Permitted Person (i) an opportunity to explain the alleged violation; (ii) a reasonable period of time to

remedy such violation; and (iii) if not remedied within a reasonable period of time, procedures for

imposing sanctions and financial penalties. The permissible sanctions identified by Rule 100 of the

Electricity Rules include, (i) provision of additional financial security against repeat violations; (ii)

financial penalties; (iii) permit suspension and revocation; and (iv) referral for civil or criminal

prosecution.

4.3.43 The draft permitting regulations break enforcement action into two stages. The first stage follows that

once the subject Permitted Person has been given an opportunity to provide a written explanation and

to remedy the subject violation, the MOEP may direct appropriate corrective action to be taken and/or

modify the subject Permit to address the cause of such violation or to prevent the violation from being

repeated.

4.3.44 The second stage involves the imposition of sanctions and penalties. The draft permitting regulations

authorize (i) the imposition of financial penalties; (ii) Permit suspension; (iii) Permit revocation; and (iv)

referral by the MOEP to appropriate government authorities for civil and criminal prosecution.

4.3.45 Upon Permit termination or expiration, Section 10 of the Electricity Law requires the Permitted Person

to transfer the business in its original form, or in accordance with the conditions agreed upon at the

time of original issuance of the Permit, to such other Permitted Person.

Part V- Miscellaneous:

4.3.46 Sample Permits. The draft permitting regulations are intended to include sample Permits for each type

of Permit that will be attached as Appendices to the permitting regulations. See Paragraph 34 of Item

2 Appendix E. Draft sample Permits are included as Annexes C through J of Item 2 Appendix E.

MOEP Tariff Regulations:

4.3.47 The Electricity Law and the draft Electricity Rules give authority to the Union Government to determine

tariffs for grid-connected electricity supplies and to Regional and State Governments and leading bodies

of Self-Administered Divisions and Zones for the determination of tariffs for off-grid supplies. The

Electricity Tariff Regulations give effect to this authority by setting out the methodologies and processes

for the submission of proposed tariffs and their review and approval by the Ministry.

4.3.48 The development of the regulations started with a mission by the DFDL Consulting Team to the MOEP

on 1-4 September 2015. During this visit, the objectives and scope of the regulations were discussed

and agreed. A workshop to confirm these agreements was held for MOEP participants on 4 September

2015.

4.3.49 Of particular note is that it was agreed that the regulations need to provide a detailed framework for

calculations, given the lack of familiarity in Myanmar with tariff regulation, but also to incorporate

flexibility to update the assumptions and input values used as experience in their application is gained.


This was achieved by placing many key variables related to the calculations into orders to be issued by

the MOEP under the Regulations themselves and, therefore, allowing these to be amended without the

need for Parliamentary approval (as is required for the Regulations).

4.3.50 Subsequent to the workshop, draft regulations were prepared and translated. These were reviewed on

a line-by-line basis with the MOEP during missions by the DFDL Consulting Team from 29 September to

2 October 2015, 13-14 October 2015, 8-10 December 2015 and 22-24 December 2015.2 Between

missions, the draft regulations were revised as necessary to incorporate comments received.

4.3.51 The final draft regulations were submitted in English and translated versions on 24 December 2015 for

MOEP s i te al o sultatio p o esses. A plai la guage su a guide to the egulatio s as also provided at the same time. The following summarizes the substance of these draft regulations as set

forth in Item 3 of Appendix E.

4.3.52 Applicable tariffs. The Regulations apply to tariffs charged for the sale of electricity by Permitted

Persons to another Permitted Person or to electricity customers. A separate tariff applies for each

Permitted Activity, whether or not these form part of the same legal entity. A separate tariff also applies

for each generating facility, even if these are owned by the same Permitted Person.

4.3.53 A number of tariffs are exempt from the Regulations as they are set and approved under legislation or

processes outside the Regulations. These are tariffs set under existing contracts; competitive

procurements or other approved market-based mechanisms; Government-to-Government

agreements; and other laws and regulations, including feed-in-tariffs and similar support schemes for

renewable energy generation. Tariffs demonstrated to have been established under competitive

circumstances shall be approved by the MOEP without the need for cost justification. Importantly, the

fact that wholesale power tariffs charged by power generators can be approved without cost

justification does not mean that such power sales and the applicable tariffs are not the subject of

regulatory review from the perspective of power purchasers who resell such power to their captive

customers. Captive customers of wholesale power purchasers must be protected against having to pay

the increased costs of imprudent power purchases.

4.3.54 In accordance with the Electricity Law, determining methodologies for setting off-grid tariffs and

approval of these tariffs are the responsibilities of Regional and State Governments and leading bodies

of Self-Administered Divisions and Zones. However, proposed off-grid tariffs must be sent to the

Ministry for review and comment prior to being approved.

4.3.55 Principles. The Regulations require that tariffs follow the principles set out in the Electricity Law and, in

addition, that they promote investments and provide incentives for improvements in the efficiency and

quality of electricity supply. The Regulations also create a general prohibition on cross-subsidies with

the exceptions that rising block tariffs may be applied for households and a uniform national retail tariff,

which requires cross-subsidies between customers of different Permitted Suppliers, may be applied.

Existing cross-subsidies from non-household to household customers must be phased out gradually to

avoid large and sudden changes in tariffs.

4.3.56 Allowed revenues. An Allowed Revenue Requirement (ARR) is calculated annually by each Permitted

Person in accordance with the Regulations and proposed to the Ministry for approval. Following

approval, the ARR is used to determine the tariffs to be charged, which are set to recover the approved

2 Travel time is not included.


ARR. The ARR is calculated as the sum of Allowed costs, Annual cost adjustments, which compensate

for differences between allowed and actual costs in the previous year due to matters outside the

control of the Permitted Person and Annual revenue adjustments, which compensate Permitted

Suppliers and Franchisees for differences between ARR and actual revenues earned in the previous year

due to differences between actual and forecast volumes sold.

4.3.57 Allowed costs for generation, transmission and distribution / retail supply are the sum of fuel costs

(generation only), non-fuel operating costs, debt interest costs, return on equity, foreign exchange

losses, depreciation and corporate income tax. Suppliers are also allowed to recover the costs of power

purchases from the Wholesale Power Supplier (single buyer) and a bad debts allowance. The allowed

costs of the Wholesale Power Supplier are calculated as the sum of power purchase costs plus

transmission costs plus a wholesale margin which recovers its own costs and the costs of working

capital.

4.3.58 Power purchase costs and fuel costs for generators are approved annually using an energy balance

prepared by the Wholesale Power Supplier and approved by the Ministry. Other operating costs are

approved based on business plans submitted by the relevant Permitted Persons. Approvals will initially

be made annually but the Regulations allow for a move to multi-year tariffs in the future.

4.3.59 The return on equity is determined by the Ministry. The Regulations provide that the minimum return

on equity for state-owned enterprises is the minimum deposit rate issued by the Central Bank of

Myanmar and the minimum return allowed for private enterprises is five percentage points (5%) above

this level.

4.3.60 Tariffs. Following approval of their ARR for the next year, Permitted Persons involved in generation,

wholesale supply and electricity transmission calculate tariffs to recover the approved ARR, following

the principles and methodologies set out in the Regulations. Where a uniform national retail tariff

applies then the Ministry will determine the retail tariffs to be applied. To do so, it will apply a table of

allocation factors issued by the Ministry. The table shows the tariff to be applied to each customer

category as a ratio to the average retail tariff.

4.3.61 For thermal generators, separate energy and capacity charges are calculated. The capacity charge is

only paid when generating capacity is available. Therefore, generators have an incentive to be available

for more hours than their availability target in order to earn extra revenue.

4.3.62 For hydro generators, firm and secondary energy charges are applied. This mechanism shares the risk

between the generator and customers of whether a year is below or above-average hydrology (rainfall)

conditions.

4.3.63 For wind and solar generators whose tariffs are not set under other regulations, a flat energy charge is

applied. This places the risk of uncertainty over output on the generator rather than on customers.

4.3.64 The wholesale tariff charged by the Wholesale Power Supplier to Permitted Suppliers is used to create

a cross-subsidy between Permitted Suppliers and, thereby, allow the application of a uniform national

retail tariff. The wholesale tariff charged to each Permitted Supplier is equal to an adjusted wholesale

tariff for that Permitted Supplier plus a surcharge where actual distribution losses exceed allowed

values (meaning additional energy must be purchased to make up the difference). The adjusted

wholesale tariff differs between Permitted Suppliers with those who have higher revenues and lower


costs paying a higher wholesale tariff to allow a lower tariff, offsetting differences in revenues and

costs, to be charged to other suppliers.

MOEP Regulations on Investments, Power Procurement and Resource Acquisition:

4.3.65 The New Electricity Law does not address the topics of forecasting and power sector planning in regards

to investment, power procurement and resource acquisition even though there appears to be a

common perception that the problems facing the Myanmar power sector have resulted from, or been

exacerbated by, the lack of forecasting and limited power sector planning. The focus and efforts of the

MOEP and other government institutions have been, and continue to be, on individual projects on a

project by project basis. This is typical of countries with state-owned industries managed by

administrative directives implementing central government planning intended to control allocation of

national resources ithout a kets i te fe e e.

4.3.66 Nonetheless, imposing regulatory requirements that will transition power sector participants into the

performance of forecasting and least cost planning is certainly consistent with the objective of the

Ele t i it La to achieve further development in electric power sector, to meet the national electricity

needs and to administer the electricity related businesses through effective and systematic

ad i istratio i li e ith the Go er e t s poli ies. See Section 3(a) of Appendix B.

4.3.67 Electricity Rules: Requirements and Guidance. In contrast, the Draft Electricity Rules require annual

forecasting and power sector planning, and yield significant guidance as to how such requirements are

to be implemented. The draft Electricity Rules requires the MOEP to prepare methodologies for

forecasting power needs, least cost investment, and power procurement planning, and to provide

guidance thereon. See Rule 2(b)(iii) of Appendix C.

4.3.68 The MOEP is also required by the draft Electricity Rules to annually prepare a multi-year National Power

Development Plan for review and approval by the Union Government, which shall be updated and

approved by the Union Government annually. National Power Development Plans are required to focus

on ensuring long term balance between reliable electricity supply and electricity usage. See Rules

2(b)(x) and 2(b)(xii) of Appendix C respectively.

4.3.69 The draft Electricity Rules require all Permitted Persons to prepare and submit annually their respective

forecasts for MOEP approval. Permitted Persons with Retail Power Supply are to forecast the load

growth of their Full Requirements Customers. See Rule 2(b)(iv) and 48(a) of Appendix C respectively.

4.3.70 Permitted Persons who are issued the National Transmission Permit and Distribution Permits are

required by the draft Electricity Rules to prepare and submit annually their expansion of investment

and additional power acquisition program for MOEP approval. See Rules 28 & 42 of Appendix C.

Investment and power procurement plans may only be approved if they are demonstrated to be least-

cost, consistent with the National Electric Power Development Plan, and to satisfaction of their

respective service obligations in accordance with prudent practices. See Rules 2(b)(iv) and 2(b)(v) of

Appendix C.

4.3.71 Under the Electricity Rules, the MOEP may only approve PPAs and the issuance of Permits for

generation if they are determined by MOEP to be consistent with least cost power procurement. See

Rules 2(b)(xiv) and 15(c) of Appendix C. In addition, Permitted Persons are prohibited from purchasing

power from new IPPs unless such purchases are the result of competitive power solicitation programs

approved by MOEP. See Rule 77 of Appendix C


4.3.72 Regulation Objectives: Scope and Purpose. The draft regulations on MOEP approval of investment,

power procurement and resource acquisition plans (hereafte efe ed to as d aft esou e a uisitio egulatio s states that these egulatio s a e, to p ote t Capti e Custo e s su je ti g fo e asti g

and resource procurement planning decisions of Permitted Persons with Captive Customers to

egulatio . These egulatio s a e also stated as i te ded, to protect against capital investments and

power procurement inconsistent with the needs of the Myanmar power sector and the welfare of

ele t i it o su e s. See Section 3 of Item 4 Appendix E. This protection has two dimensions that

must be addressed by these draft regulations.

4.3.73 First, these regulations need to be structured to help prevent Permitted Persons with Captive

Customers from passing through to such customers the increased costs of poor management, such as

the increased costs associated with (i) availability reductions and inefficient heat rates due to sub-par

maintenance practices; (ii) cost over-runs and construction delays due to deficient design, poor

planning, poor construction management, and defective implementation of quality assurance

programs; and (iii) production delays and interruptions due to fuel supply problems and failures to

comply with applicable environmental, health and safety legal requirements.

4.3.74 Second, these regulations must establish the process and procedures that will result in the coordinated

and efficient formulation of a comprehensive least cost national plan that focuses on the need for, and

prioritizes, power sector investments to achieve a long term balance between reliable electricity supply

and electricity usage. This task will become progressively more difficult as the structure of the Myanmar

power sector moves away from being government-owned and vertically integrated within the MOEP to

a more disaggregated industry structure with a mix of private and government owned generation

plants, a separate enterprise responsible for the national transmission grid, one wholesale power

supplier serving as the Single Buyer, and a sole supplier to multiple privately owned and government

owned distribution companies.

Forecasting

4.3.75 Scope of Application: With one exception, the draft resource acquisition regulations requires all

Permitted Persons to forecast annually, for a minimum of five years, the growth in electric load and

electric power needs in accordance with methodology and guidance provided by MOEP. See Section

5(a)&(b) of Item 4 Appendix E. Permitted Persons authorized to engage in Distribution and Retail Power

Supply are not required to perform forecasts for so long as they remain captive customers of only one

source of wholesale power. Under such circumstances, that sole supplier of wholesale power shall

forecast load growth for all of its captive customers, specifically load growth for the service territories

of Permitted Persons authorized to engage in Retail Power Supply. See Sections 5(e)(ii) and 5(e)(i) of

Item 4 Appendix E respectively.

4.3.76 Interim Methodology: Until the Ministry has issued its forecasting methodology and guidance on same,

forecasting will involve simple expansions of supply side resources and the MOEP shall approve

forecasts if it concludes that, (i) the methodology used was reasonable and properly performed; and

(ii) the assumptions underlying the forecasts appear reasonable and not imprudent. See Section 5(c)(i)

of Item 4 Appendix E.

4.3.77 Integrated Resource Planning: At such time as the MOEP issues its forecasting methodology and

guidance thereon, forecasting will thereafter be considered Integrated Resource Planning. Forecasts of

total electricity demand should be disaggregated by sector, end-use, technology, and customer classes.


Based on these end-use demand break-downs and existing electric demand forecasts, disaggregated

projections of future levels of energy service growth are made. See Section 5(d) of Item 4 Appendix E.

4.3.78 Standard for Approval: MOEP shall approve forecasts performed in accordance with the forecast

methodology and guidance issued by the MOEP without obvious flaw or error. Departures from the

Mi ist s ethodolog a d guida e a e a epta le fo a demonstrable good cause. See Section 7 of

Item 4 Appendix E.

Investments, Power Procurement and Resource Acquisition Plans

4.3.79 Preparation: Permitted Persons who have Captive Customers are required by the draft resource

acquisition regulations to prepare annually for review and approval an Investment, Power

Procurement and Resource Acquisition Plan which sets forth the actions planned to be taken by such

Permitted Persons to satisfy forecasted growth in demand, and to otherwise satisfy their respective

service obligations. See Section 9(a) of Item 4 Appendix E.

4.3.80 Investment, Power Procurement and Resource Acquisition Plans are required by the draft resource

acquisition regulations to address a ten year period with significant details for the first two years.

Investment, Power Procurement and Resource Acquisition Plans are to, (i) identify the optimal

combination of actions required to be taken by Permitted Persons with Captive Customers to be able

to satisfy their respective service obligations at least cost; and (ii) demonstrate to consistency with the

National Electric Power Development Plan to the satisfaction of MOEP. See Section 9(b) of Item 4

Appendix E.

4.3.81 Investment, Power Procurement and Resource Acquisition Plans are required by the draft resource

acquisition regulations to include lists of all wholesale power sources and supply that have thus far

been approved by MOEP for the applicant and any revisions thereto proposed by applicant as required

for the applicant to satisfy its needs for power at least, and to comply with its service obligations. See

Section 10(b)(i) of Item 4 Appendix E.

4.3.82 Standard for Approval: MOEP shall approve Investment, Power Procurement and Resource Acquisition

Plans proposed by Permitted Persons with Captive Customers based upon demonstrated consistency

with the National Electric Power Development Plan, long term balance between reliable power supply

and usage, and satisfaction of their respective service obligations at least cost. See Section 17 of Item

4 Appendix E.

4.3.83 Filing Requirements: Applications for MOEP approval of Investment, Power Procurement and

Resource Acquisition Plans are required by the draft resource acquisition regulations to include the ten

items identified in Section 11 of the regulations. The items required to be filed include, (i) a summary

of actions to be undertaken by the applicant per the Investment, Power Procurement and Resource

Acquisition Plan; (ii) an identification of all supply side and demand side options and the economic

assumptions considered in the preparation of the Investment, Power Procurement and Resource

Acquisition Plan; (iii) an explanation of the methodology used to prepare the Investment, Power

Procurement and Resource Acquisition Plan; and (iv) a summary of the impact the subject Investment,

Power Procurement and Resource Acquisition Plans is expected to have on the appli a t s ta iffs. See

Section 11 of Item 4 Appendix E.


Power Procurement Permission

4.3.84 MOEP Permission: When the national transmission company or a Permitted Person engaged in

distribution and retail power supply (after becoming responsible for forecasting load growth when

such Permitted Person can purchase power from multiple wholesale power suppliers) determines that

it needs an additional source or supply of power to satisfy its service obligations, and upon its

selection of a specific power source or power supply as offering the best effective price obtainable,

that Permitted Person may request the Ministry to grant it permission to procure power from that

source or supply of power. However, MOEP permission to procure power from a specific power source

or supply of power is not necessary if that specific source or supply of power was identified as MOEP

approved in a Power Development Plan included in an Investment, Power Procurement and Recourse

Acquisition Plan approved by the Ministry within the last five (5) years. See Section 15 of Item 4

Appendix E.

4.3.85 Standard for Approval: MOEP shall grant its permission for the applicant to procure power from a

specific power source or supply of power and to negotiate a power acquisition contract to meet load

growth or reduce power purchase costs upon its determination as to the prudence of the proposed

procurement. See Section 17 of Item 4 Appendix E.

Project Specific Power Procurement

4.3.86 MOEP Approval Forums: The draft resource acquisition regulations permit requests for MOEP approval

of specific sources or supply of power to either be included in applications for MOEP approval of

Investment, Power Procurement and Resource Acquisition Plans or submitted separately with MOEP.

See Section 19 of Item 4 Appendix E.

4.3.87 Filing Requirements: The draft resource acquisition regulations require applications for MOEP approval

of power procurement from a specific power plant to include a term sheet or comparable document

setting forth key commercial understandings. See Section 20 of Item 4 Appendix E.

4.3.88 Standard for Approval: MOEP shall approve a proposed procurement of power from a specific power

plant once it is satisfied that the proposed procurement meets the appli a t s se vice obligations at

least cost and in accordance with prudent utility practices. See Section 21 of Item 4 Appendix E.

Power Purchase Agreements

4.3.89 MOEP Approval Required: Power purchase agreements to which a Permitted Person with Captive

Customers proposes to become a party shall obtain MOEP approval before such agreements can be

executed by said Permitted Persons. See Section 23 of Item 4 Appendix E.

4.3.90 Filing Requirement: Applications for Ministry approval of a power purchase agreement shall include a

statement providing justification for the rates, terms and conditions proposed to be agreed to under

the power purchase agreement. See Section 24 of Item 4 Appendix E.


MOEP Regulations on Competitive Tenders and Solicitations:

4.3.91 The new Electricity Law did not address the topic of competitive procurement of new generation and

wholesale power supply. Nonetheless, competitive solicitations are certainly consistent with the

o je ti es of the Ele t i it La to encourage local and foreign investment in the power sector, to

create a conducive environment for private investment, the eatio of transparent and appropriate

rules and regulations to prescribe electricity rates , a d the sha i g of i fo atio go e e t departments with private organizations and private investors with the general public to create public

awareness and transparency.

4.3.92 The importance of competitive procurement of new generation and new sources of wholesale power

supply is globally recognized. This recognition is the likely genesis of the prohibition in the draft

Electricity Rules against buying power from new IPPs unless such purchases resulted from competitive

power solicitation programs are approved by the MOEP. See Rule 77 of Appendix D. This prohibition is

probably the reason for extending the high priority for preparation to regulations on competitive

solicitations.

4.3.93 Once tasked with the preparation of these regulations, the DFDL Consulting Team was informed that

the ADB had retained Deloitte Touche to prepare guidance on competitive bidding. After meeting with

Deloitte and the DFDL Consulting Team, the ADB decided that drafting of the competitive bidding

regulations should await receipt of the guidance being prepared by Deloitte.

4.3.94 Two features of the guidance on competitive bidding that was prepared by Deloitte were discussed by

the DFDL Consulting Team. First, the guidance focused exclusively on a form of competitive bidding

able to impose competitive discipline on unsolicited power projects. This would have typically, in our

experience of competitive bidding guidance, included other scenarios. Second, during the initial

reading, the basis for awarding projects between the original project proponents and competitors

seemed simplified and could result in non-optimal project selection.

4.3.95 Upon further discussion and reflection from the DFDL Consulting Team, the exclusive focus of the

guideli es o this o e fo of o petiti e iddi g ost ofte efe ed to as a “ iss Challe ge as the correct approach. Under this type of bidding program, the project proponent enters into a

memorandum of understanding (MOU) that permits the proponent to conduct the feasibility study,

preliminary environmental assessments, and the requisite site studies. The MOU also sets forth the

budget for this development work and the agreement for the project proponent to transfer this

i telle tual p ope t to a othe de elope , if that othe de elope s p oje t p oposal is supe io to the propone t s p oposal a d the othe de elope akes pa e t to the p opo e t of the a ou t of the development budget set forth in the MOU which authorized the original proponent to perform the

feasibility study.

4.3.96 The MOEP appears swamped with unsolicited proposals that need to be processed and evaluated. The

processing and extensive negotiations required for unsolicited projects prolong project development

and increases project costs. Furthermore, there is no baseline against which the subject power

purchases can be evaluated. Finally, absent competitive pressures, there is no assurance that the power

purchased is priced at the lowest reasonable cost.

4.3.97 Given the limited resources and experience of the MOEP and the Government with IPPs and

competitive bidding, had the guidance from Deloitte addressed other forms of competitive tenders,


this would likely have caused confusion and would certainly have extended the time required to finalize

these draft bidding regulations.

4.3.98 Following the instructions of the ADB to draft these regulations in accordance with the content of the

guidance prepared by Deloitte, the draft bidding regulations were prepared and delivered to the DG of

the DEP for review by and discussions with the Steering Committee. Such review and discussions took

place during the second week of November 2015. Significant efforts on behalf of the DG and the

Steering Committee enabled two rounds of review and revisions to be concluded, and the draft

regulation to be nearly finalized by 31 December 2015.

The final version of the draft regulations on competitive solicitation/tenders is set forth as Item 5 of

Appendix E hereto. The following is a brief summary of the content of these draft regulations.

Part I- Scope of Bidding Regulations:

4.3.99 Eligible Projects. Subject to certain exceptions, all Eligible Projects for which pre-tendering activities by

the proponents of unsolicited projects are subject to competitive tenders. See Section 3.1 of Item 5

Appendix E.

4.3.100 Eligible Projects shall exclude those power plants which (i) the Union Government determines should

not be subject to competitive tender, and (ii) new or strategic technologies that have been exempted

from bidding by the MOEP. See Sections 3.2 and 3.4 of Item 5 Appendix E respectively.

4.3.101 Unsolicited proposals for power plants involving long term contractual power purchase obligations for

which an MOU with the MOEP providing for the performance of a feasibility study have been executed

by the date of the notification of these regulations are not be subject to competitive tenders. See

Section 3.1 of Item 5 Appendix E.

4.3.102 Eligible Projects must have been assessed by the MOEP and considered technically feasible and

consistent with Myanmar power sector master plan. See Section 4(b) of Item 5 Appendix E.

4.3.103 Joint MOEP Shareholding. Projects under joint shareholding with the MOEP shall require joint venture

(JV) agreements to be executed with MOEP and engineering, procurement and construction (EPC)

contracts (as well as operation and maintenance contracts, where applicable), to be tendered through

transparent, international competitive bidding processes. See Section 3.3 of Item 5 Appendix E.

Part II- Eligible Projects: Identification and Approvals:

4.3.104 Designation for Competitive Tenders. Construction, expansion and modernization of grid-connected

power projects larger than 30 MW of any of the eight different types of generation plants identified in

Section 4(a) of these draft bidding regulations shall be considered an Eligible Project. See Section 4(a)


4.3.105 The MOEP shall designate those Eligible Projects that are to be considered for development by

competitive tender based upon an MOEP assessment technical feasibility and consistency with the

Myanmar power sector master plan. See Section 4(aa) of Item 5 Appendix E.

4.3.106 Budget Requirements for Pre-tendering Works. MOEP to identify the budget requirements of the

proponent of the unsolicited project for pre-tendering activities including performance of the feasibility


study, preliminary environmental assessment, and those studies regarding site identification,

rehabilitation, resettlement and obtaining necessary consents and clearances. The budget for pre-

tendering activities shall be specified in the MOU executed with MOEP which authorizes the proponent

to perform the feasibility study. See Section 4(bb) of Item 5 Appendix E.

Part III- Bid Process Management:

4.3.107 Bid Process. Eligible Projects shall be undertaken for competitive bidding on a Build, Operate, Transfer

(BOT) basis. See Section 4(dd) of Item 5 Appendix E.

4.3.108 The bidding process shall be conducted by way of standard international power industry practices for

competitive solicitations for power procurement from privately owned power plants. See Section 6(b)


4.3.109 The draft bidding regulations permit the use of stage or two stage bidding processes. In the two stage

process, the first solicitation (the Request for Qualifications) solicits potential bidders who are

interested in submitting a project proposal and is willing to submit its qualifications in support of its

inclusion on the shortlist of companies that will be permitted to submit a project proposal. See Section

6(b) of Item 5 Appendix E.

4.3.110 Bid Process Management. The draft bidding regulations would require proponents of unsolicited

projects to execute MOUs with the MOEP to obtain authorization to perform their respective feasibility

studies. These MOUs would also specify (i) the budget for the feasibility study and other pre-tendering

works, and (ii) importantly, the amount of compensation required to be paid to the proponent in the

event the subject unsolicited project is not awarded to the winning proposal and not to the Proponent.

See Sections 4(bb) and 6(a) of Item 5 Appendix E.

4.3.111 The MOEP cannot initiate a competitive tender for an Eligible Project that is an unsolicited project until

the proponent of the unsolicited project completes the feasibility study and other pre-tendering works

set forth in the relevant MOU executed with the MOEP. See Section 4(bb) of Item 5 Appendix E.

4.3.112 Upon completion of pre-tendering activities by the proponent of an unsolicited project approved as an

Eligible Project, such project shall be subjected to competitive tender. See Section 4(cc) of Item 5

Appendix E.

4.3.113 The Ministry shall be required to publish notice of competitive tenders in at least two (2) national

e spape s, t o i te atio al E glish e spape s, the Mi ist s e site a d othe p i t/digital media, as it deems fit, inviting participation from prospective bidders. See Section 6(b) of Item 5

Appendix E.

4.3.114 The Request for Qualification (RFQ) stage shall provide persons interested in qualification to raise

questions and obtain answers regarding project details and qualifications requirements by means of

electronic communications with the MOEP. The expressions of interest and qualifications received in

the RFQ stage shall be opened at the notified time in the presence of representatives of the bidders

who wish to attend. See Section 6(e)&(f) of Item 5 Appendix E.

4.3.115 The Request for Proposal (RFP), the project feasibility report and other development studies and

documentation prepared by the proponent of the unsolicited project, the amount of compensation to

be paid to the project proponent if the subject project is awarded to a third party, and the standard bid


documentation prepared by the MOEP in accordance with the requirements of these regulations

project documentation shall be distributed to the shortlisted Bidders. See Section 6(c)&(h) of Item 5

Appendix E.

4.3.116 Proposals submitted by bidders in response to the RFP shall be comprised of the Technical Bid and the

Financial Bid. The RFP stage shall provide for a pre-bid conference to inform the bidders about the

selection process and the finer details about the project. See Section 6(c)&(i) of Item 5 Appendix E. The

Ministry shall instruct the Bid Evaluation of the shortlisted Bidders whose Non-Financial Bid stands

responsive. See Section 6(i)(3) of Item 5 Appendix E.

4.3.117 Selection Process. The process for selection of the successful bidder shall be based on the methodology

specified in Section 10 of these regulations. The evaluation of the Financial Bid shall be guided by the

following:

a. The aggregate of the components of the Capacity Charges (investment charges and fixed

component of O&M charges) shall be computed for each year;

b. The Net P ese t Value NPV of the agg egate o po e t shall e o puted fo ea h ea based on the discount rate specified in the RFP from the estimated date of commissioning;

c. The NPV shall then be discounted to arrive at the levelized component of the Capacity Charges;

d. Similarly, the levelized component of Notional Fuel charges (in case of coal and gas based plants)

and fixed O&M Charges shall be computed.

See Section 10(a) of Item 5 Appendix E.

4.3.117 The financial bid of a bidder shall be rejected if it contains deviation from the tender conditions specified

in the RFP. The final levelized tariff shall comprise of the summation of the levelized components of

the Capacity Charges, Variable O&M Charges and Notional Fuel Charges (for coal and gas based plants).

See Section 10(b) of Item 5 Appendix E.

4.3.118 The bidder with the lowest levelized tariff shall be declared as the successful bidder by the Selection

Committee. In case of a tie, the financial qualification requirement of Net worth of the Bidder shall be

considered and the tied Bidder with the higher Net worth shall be declared as the successful Bidder.

See Section 10(c)&(d) of Item 5 Appendix E.

4.3.119 Selection Committee. The Selection Committee shall shortlist the Bidders for the RFP stage based upon

the responses received in the RFQ stage. See Section 6(g) of Item 5 Appendix E.

4.3.120 For so long as the MOEP is responsible for implementation of the bidding process required by these

regulations, the Selection Committee shall issue letters of award. See Section 5(d) of Item 5 Appendix

E.

4.3.121 The Selection Committee shall have the power to approve successful bidders based on the criteria

formulated as set forth in RFPs. See Section 6(f) of Item 5 Appendix E.


4.3.122 The Selection Committee reserves the right to reject any or all the bids for any reason and waive any

minor defects therein. In all matters related tote bid evaluation and the selection of bidder, the decision

of the Selection Committee shall be final and binding. See Section 10(f) of Item 5 Appendix E.

Part IV- Preparatory Activities:

4.3.123 Before the MOEP initiates a competitive tender for an Eligible Project, the following key preparatory

activities shall either have been either initiated or completed, as applicable: (i) completion of the

standard bid documentation in accordance with the requirements of these regulations; (ii) the site

identification and land-related clearances by the project proponent; (iii) the environmental assessment

for the subject power plant by the project proponent, and (iv) approval of the use of forest land, fuel

arrangements, water arrangements, and other requisite governmental approvals for the subject power

plant as required by applicable law. See Section 7(a) of Item 5 Appendix E.

4.3.124 Standard Bidding Documents: MOEP shall prepare the project specific bid documents (RFQ, RFP and

PPA) in accordance with these regulations. Project specific bid documents shall contain inter alia the

following information: (i) bid evaluation methodology and selection process; (ii) minimum design and

performance standards for the subject power plant, including minimum functional specifications; (iii)

draft power purchase agreement setting forth the key commercial terms and contractual arrangements

and the respective roles and responsibilities of the parties thereto; (iv) instructions to potential bidders

related to meeting the qualification criteria, submission of bids and the selection criteria and process;

(v) the requisite bid formats for the Request for Qualification (RFQ) and, the Request for Proposal (RFP)

stages; and (vi) key timelines for each stage of the bid process.

4.3.125 Requests for Qualifications (RFQ): RFQs all specify the amount of contracted capacity proposed,

including the specific unit size, technology type and a flexibility to operate within a range of specified

capacity. See Section 7(b) of Item 5 Appendix E. RFQs shall set forth project specific details related to

site, status update on key preparatory activities as specified these regulations. RFQs shall set forth the

following information:

a. The term for PPA with the standard term of 15 years for natural gas fired power plants and 25

years in case of coal-based plants, with variations permitted as per the sector requirements as

determined by MOEP;

b. Minimum qualification criteria: These shall pertain and include but not limited to the

following: See Section 7(b)(4) of Item 5 Appendix E.

Legal Requirement: International firms may be allowed to participate.

Technical Requirement: Experience in (i) development and successful

commissioning of similar projects conducted in the last seven years; (ii)

operations and for similar capacities. In addition to the requirement, individual

capacity (MW) of at least one unit size shall be specified to be met as the

minimum size of each project; and

Financial Requirement: Net worth criteria of a minimum of 0.25 million USD/MW

in any of the last three financial years. Methodology for computation of NPV

worth shall be clearly specified in RFQs.


c. Specific forms are to be provided by MOEP for submission of responses to RFQs, including

o e i g lette , po e of atto e , o so tiu ag ee e t, o e ship st u tu e, idde s undertakings, technical and financial criteria. Finally, the bidding regulation sets forth

evaluation criteria and the process for RFQ responses and procedures of shortlisting of

qualified bidders for RFP stage. See Section 7(b)(7) of Item 5 Appendix E.

4.3.126 Requests for Proposals (RFPs): RFPs shall include: (i) conditions precedent for signing or effectiveness

of the PPA, including submission of performance guarantee and execution of share purchase

agreement; (ii) specific formats related to Power of Attorney, Board of Directors resolutions, bid bond,

undertakings, and financial bid; and (iii) procedures regarding submission of bids and the evaluation of

bid. See Section 7(c) of Item 5 Appendix E.

4.3.127 Power Purchase Agreements (PPAs): The PPAs to be included in the standard bidding documents are

required by the draft bidding regulations to address twenty contractual topics identified by these

regulations as key obligations. All twenty of these key obligations are standard topics commonly

addressed in long term PPAs typically used for power plants with limited recourse debt financing.

Part V- Contract Award:

4.3.128 Upon the selection of the preferred bidder, the proponent of the unsolicited project shall be informed

of the terms, conditions and tariff offered by the preferred bidder and the proponent of the unsolicited

project may match such offer. If the proponent of the unsolicited project elects in writing not to match

the offer of the preferred bidder, the subject project shall be awarded to the proponent.

4.3.129 If the proponent of the unsolicited project fails to elect in writing to match the offer of the preferred

bidder within thirty (30) days of being informed of the terms, conditions and money offered by the

preferred bidder, the subject project shall be awarded to the preferred bidder subject to the

requirement that the preferred bidder to pay compensation to the proponent as specified in MOU for

the subject project executed by the proponent. See Section 11(a) of Item 5 Appendix E.

4.3.130 If the preferred bidder is awarded the subject project, the preferred bidder shall submit the

performance security within the period of time stipulated in the relevant PPA, failing which its Letter of

Award may be cancelled and its bid security forfeited. If the preferred bidder is awarded the subject

project, the preferred bidder shall cause the PPA for the subject project to be executed within 60 days

of its receipt of the Letter of Award and provide the performance security in accordance the terms of

the subject PPA, failing which its Letter of Award may be cancelled, its bid security forfeited and another

bidder may still be selected instead. See Section 11(d) of Item 5 Appendix E.

Part VI- Solicited Generation Capacity and Power Projects:

4.3.131 Solicited Projects. Generation capacity and power plant additions that are Eligible Projects but do not

involve unsolicited projects from which electric power is to be procured by the MOEP or Permitted

Persons shall be selected by means of competitive tenders. See Section 12 of Item 5 Appendix E.

4.3.132 Direct negotiation for power procurement not involving unsolicited projects shall be resorted to under

the following conditions by the Selection Committee: (i) if, after notification of RFQ, only one bidder

submit the response to RFQ and is found to be meeting the qualification requirements; (ii) if, after

notification of RFQ, more than one bidder submits the response to RFQ, but only one bidder is found

to satisfy the qualification requirements; (iii) if, after issuance of RFP, only one bidder submits the bid


and is found to satisfy the requirements of the RFP; or (iv) if, after issuance of the RFP, more than one

Bidder submits a bid proposal, but only one bid proposal is determined to satisfy the requirements of

the RFP. See Section 13(a) of Item 5 Appendix E.

ERC Procedures:

4.3.133 When the project contract was extended for the first time until 30 September 2015, the selection of

the six regulations for prioritized preparation was based in large part upon the assumption that the

Electricity Rules would reintegrate the ERC into the regulatory process, and that the provisions in the

draft Electricity Rules addressing the internal organization, procedures and process for the ERC to be

set forth in the Electricity Rules would need to be supplemented by more detailed regulations.

4.3.134 Accordingly, when work began on these six regulations in April 2015, the preparation of the regulations

to govern the internal structure, process and procedures of the ERC remained a top priority. Indeed,

the DG of the DEP identified the ERC regulations as having the highest priority behind finalization of the

Electricity Rules. As such, the draft regulation on ERC internal organization, process and procedures

delivered to the DG and the Steering Committee focused on regulatory features and requirements

intended to enhance the transparency, independence, and accountability of regulation by the ERC. A

copy of this draft regulation is attached hereto as Item 6 of Appendix E.

4.3.135 As explained above, by the time the draft ERC regulations were ready for review and discussion with

the Steering Committee, the Minister of the MOEP had given instructions to eliminate the ERC related

provisions from the draft Electricity Rules and to concentrate all regulatory tasks and responsibilities

within the MOEP. Elimination of the ERC from the regulatory process rendered the draft regulation on

ERC internal organization, process and procedures largely irrelevant. Further, the DG indicated that the

MOEP will not be involved in issuing the rules and procedures that will govern the activities of the ERC.

All work related to ERC process and procedures were indefinitely suspended.

4.3.136 However, in late October 2015, the DG and the Steering Committee determined that although the

MOEP is unlikely to be involved in the issuing of the rules and procedures for the ERC, the difficulties

facing the establishment of the ERC would be reduced if MOEP work on the ERC organization and

internal rules and procedures could be completed, and a finalized package provided to whatever

government institution is ultimately assigned responsibility for prescribing such regulations. Work on

the draft regulations on the ERC processes and procedures then resumed.

4.3.137 The revised draft of the ERC processes and procedures essentially combined, in a single document, all

of the rules of the Initial Version of the Electricity Rules related to the ERC that had been deleted from

the Electricity Rules. Given the lack of immediate importance regarding these regulations, the DG and

the Steering Committee spent less effort on the ERC processes and procedures. These processes and

procedures were renamed the ERC Procedures since the ERC does not have the authority to issue rules

and regulations. The final version of the draft ERC Procedures are attached hereto as Item 6 of Appendix

E. The following summarizes the substance of these draft ERC procedures.

ERC Organization:

Composition and Appointment

4.3.138 The Electricity Law requires the Union Government to establish the ERC as a commission comprised of

a Chairman and four to six Commission Members, With two or three exceptions, the Chairman and the


Commission Members shall serve initial five year terms.

4.3.139 The draft ERC Procedures would require the initial term of two or three Commission Members to be

limited to three years, with all subsequent terms of Commission Members consisting of five year terms

The draft ERC Procedures would limit Commission Members to two appointments. See Section 3(b) of

Item 6 Appendix E.

4.3.140 The Chairman and the other Commission Members shall be employed full time and are to be eminent

professionals of known integrity and competence with experience in law, business, engineering,

finance, accounting, economics, business management or administrative management. In addition, the

draft ERC Procedures would require the Chairman and Commission Members to have at least five (5)

years and three years of experience, respectively, in the electric power business. See Section 3(d)&(e)


4.3.141 The Chairman and other Commission Members shall not have any other employment for any other

activities directly or indirectly related electric power business. While employed at the Commission, the

Chairman, Commission Members, and Commission employees (and their spouses, children and parents)

shall not enter into the employ of any Permitted Person or permitted electricity related business. In

addition the ERC Procedures will prohibit the foregoing persons from, (i) serving as consultants to or

hold advisory positions thereto; and (ii) owning stocks or bonds of, or have any pecuniary or financial

interest in any Permitted Person.

Chairman

4.3.142 The draft ERC Procedures would assign the Chairman the following powers and duties: (i) set the

agenda and schedule Commission meetings; (ii) preside over Commission meetings; (iii) casting vote

to be used when there is an equality of votes; (iv) hire the Commission Secretary and the Commission

Officers; (v) determine the employment terms and conditions of the Commission Secretary and other

Commission Officers in consultation with other Members; (vi) prioritize work efforts and functions; (vii)

be responsible for supervising the management and administration of the Commission Office; (viii)

preparation of the annual budget for consideration and approval of the Commission; and (ix) designate

in writing another Member to fulfill temporarily some of the duties otherwise the responsibility of the

Chairman. See Section 4 of Item 6 Appendix E.

Dismissal

4.3.143 The Chairman and other Members shall be dismissed from office under following situations: (i)

conviction of a criminal offense; (ii) mental or physical incapacity; (iii) serious violation of restriction

regarding conflicts of interest; and (iv) seriously neglected or abandoned his or her duties. See Section

5 of Item 6 Appendix E.

Commission Office

4.3.144 The Commission Office comprises the administrative and professional staff and employees, physical

plant, facilities and equipment required to support Commission activities. The organization and

functioning of the Commission Office shall be determined by the Commission.

4.3.145 The Commission Office is to (i) provide professional and technical support to the ERC; (ii) establish and

maintain public records; and (iii) house a legal department, economics department, engineering and


technical support department, and an administrative and management department. The draft ERC

Procedures allow the Chairman to establish such new departments as the Chairman may deem

necessary. The draft ERC Procedures would require the Chairman and the Commission Officers to

employ administrative and professional staff solely on the basis of merit.

ERC Responsibilities:

ERC Functions and Duties

4.3.146 The draft ERC Procedures acknowledges that the Commission shall need to perform the functions and

duties prescribed in Section 5 of the Electricity Law. As requested by the Union Government, the ERC

shall review and make substantive comments to the Union Government on MOEP regulatory decisions

for the approval of the Union Government. In addition, as requested by the MOEP, the Commission

shall provide written advice and opinions on fixing and amending tariffs and matters related to the

power sector and power sector regulation. Finally, the ERC is to prepare and advice regarding new

methodologies for determining tariffs for consideration by the Union Government, the Ministry, other

Permitting Authorities, Permitted Persons and other interested Persons. See Section 7 of Item 6

Appendix E.

Independence and Autonomy

4.3.147 The draft ERC Procedures would require the Commission to perform its duties and functions

independent from the Ministry, which include opening and maintaining a bank account in its own

name, and preparing an annual budget for its activities and operating expenses for submission to the

Ministry of Finance.

Financial Reports

4.3.148 The Commission shall prepare annual financial statements, which are to be audited, no later than one

month after the end of each financial year. Within one month after such auditing, the Commission shall

submit all reports to the Union Government and make available for public review.

Commission Reports

4.3.149 The Commission shall submit, to the Union Government, a business report every (6) months which shall

include, (i) the affairs conducted for that year and anticipated developments for the following year;

and (ii) the state of electricity-related works within Myanmar.

ERC Meetings and Procedures:

4.3.150 Advance Notice and Agenda: The Chairman shall provide each Commission Member at least ten

(10) days advance written notice of the date, time and location of each meeting of the Commission,

together with a list of all matters to be considered by the Commission.

4.3.151 Quorum and Voting: A majority (above 50 percent) of the Commission Members shall constitute a

quorum, and decisions shall be taken by majority votes of the Commission Members present at duly

constituted meetings of the Commission.


4.3.152 Commission Decisions: All orders, determinations and decisions of the Commission shall be made in

writing and shall set forth the legal and factual basis in support of such decisions.

4.3.153 Public Attendance: All meetings of the Commission shall be publicly noticed and open to public

attendance and observation.

4.4 Analysis and Assessment

4.4.1 The six draft regulations prepared on a prioritized basis represent a considerable effort on the part of

the DG and the Steering Committee over the last nine months. These efforts have been fruitful,

resulting in regulations which are, for the most part, ready for issuance, workable and able to support

MOEP regulation becoming operational. Also, in several regards, the draft regulations include features

that will move power sector regulation closer to international best practices.

Filing Regulations:

4.4.2 The draft filing regulations are ready for issuance and are complete in that they address all of the

elements of regulatory proceedings. The draft regulations have been intentionally kept basic and simple

in order to minimize confusion and reduce the difficulties of application when first applied. The draft

regulations include features consistent with international best practices, such as the publication of

notices of all regulatory filings, an opportunity for members of the public who could be adversely

affected to participate in regulatory proceedings, and the possibility of a public hearing regarding

disputes as to material facts as necessary to arrive at a just and reasonable result. These features should

help to improve the transparency of MOEP regulation.

4.4.3 The only possible shortcomings of the draft filing regulations are for the requirements for the MOEP to

render regulatory decisions (i) within 120 days of the date on which the relevant applications were

accepted for filing; and (ii) regarding reconsideration requests within 30 days of the receipt of such

requests. These deadlines seem overly ambitious and should be revised to provide more realistic

deadlines.

Permitting Regulations:

4.4.4 The draft permitting regulations are also ready for issuance and are complete in that they address

applications for, revisions and modifications, and suspensions and revocations of Permits, as required

by Rule 80 of the Electricity Rules. The draft regulations have also been intentionally kept as simple as

possible to minimize confusion and reduce the difficulties of application when first applied.

4.4.5 The draft permitting regulations set forth the form for Permit applications and the information required

to be provided for in (i) all Permit applications; (ii) applications for each type of Permit and each type

of Electricity Related Works; (iii) applications involving both existing and new power facilities; and (iv)

applications for each type of power facility, including thermal and hydro power generation,

transmission and distribution.

4.4.6 From the perspective of private developers, there are two features that are particularly noteworthy.

First, transparency of regulation is promoted by the requirement that the MOEP, if it intends to deny a

permit application, is required to give the applicant an opportunity to make a presentation to the MOEP

as to the reasons its application should not be denied. Second, the draft permitting regulations prohibits


Permits from being issued and becoming effective until such time as the applicant has obtained all

requisite governmental approvals, and for generation Permits, execution of a power purchase

agreement pre-approved by MOEP.

4.4.7 The draft regulations set forth requirements that apply to all types of permitted power sector

participants as well as requirements specific to one or two types of participation. The draft regulations

further elaborates on the service obligations of power sector participations by means of the terms set

forth in the sample permits attached to the draft regulations.

4.4.8 In regards to enforcement, the draft permitting regulations break enforcement action into two stages.

The first stage follows the subject Permitted Person. After having been given an opportunity to provide

a written explanation and to remedy the subject violation, the MOEP may be directed to take

appropriate corrective action by another department of MOEP and/or to modify the subject Permit to

address the cause of such violation so as to prevent the violation from being repeated. The second

stage involves the imposition of sanctions and penalties. The draft permitting regulations authorize (i)

the imposition of financial penalties; (ii) Permit suspension; (iii) Permit revocation; and (iv) referral by

the MOEP to the appropriate government authorities or civil and criminal prosecution.

4.4.9 Overall, the draft permitting regulations comprehensively address this topic with sufficient detail and

flexibility to be effective, workable, and provide the ability to adjust permits as required in order to

support the ongoing evolution of the structure of the power sector and the possibility of more

aggressive structural reforms that may be pursued in the future. In this regard, the one shortcoming of

the draft regulation is the omission of any requirement to pay compensation to power sector

participants who are adversely impacted by permit revisions made by the MOEP to implement

government mandated structural reforms.

4.4.10 However, to minimize the adverse financial effects on Permitted Persons of unilateral modifications of

Permits to implement government policies on power sector structural reforms, a requirement should

added to the draft permitting regulations that requires Permitted Persons to be paid compensation for

the assets that are to be divested to achieve the power sector structure desired by the Union

Go e e t. “u h a e ui e e t ould alle iate p i ate i esto s o e s ega di g the legal

authority of MOEP to unilaterally revise Permits.

4.4.11 Such a requirement for the payment of compensation would be similar to the requirements already set

forth in the new Electricity Law which require payment of compensation, (i) when the National

Transmission acquires special transmission facilities once such special transmission facilities become

connected directly or indirectly with the national transmission system; and (ii) when a Permit either

expires or is prematurely terminated and the Permitted Person who has lost the Permit must transfer

facilities and equipment to the new Permitted Person who has assumed responsibility for the Electricity

Related Works in which the prior Permitted Person had been engaged.

Tariff Regulations:

4.4.12 The draft tariff regulations are also ready for issuance and are complete. As agreed with the DG of the

DEP and the Steering Committee, the draft tariff regulations provide a detailed and comprehensive

framework for tariff calculations. The draft tariff regulations set forth formulas by which tariffs are to

be determined for each type power sector activity and for each type power generation technology. The

draft tariff regulations provide the details needed to establish revenue requirements, permissible

returns on equity, and the other cost categories of relevance to tariff calculations.


4.4.13 Of particular note, to accommodate the current lack of familiarity in Myanmar with tariff regulation,

the draft tariff regulations incorporate sufficient flexibility for assumptions and input values initially

specified to be revised as experience with tariff regulation is gained. This was achieved by specifying

many of the key variables for the calculation of tariffs into orders to be issued by MOEP, thus allowing

revisions of such key variables without having to obtain Parliamentary approval, as would be required

to modify regulations.

4.4.14 The draft tariff regulations elaborate on the principles governing tariff determinations that are intended

to assure power sector participants of the opportunity to recover all prudently incurred costs and to

earn sufficient revenue promote investments and incentivize efficiency and quality improvements in

the power supply. With two exceptions, the draft tariff regulations create a general prohibition against

cross-subsidies. Existing cross-subsidies from non-household to household customers are required by

the draft tariff regulations to be phased out gradually.

4.4.15 The two exceptions to the foregoing prohibition are the permitted use of rising block tariffs for

households and a uniform national retail tariff. The cross-subsidies between customers of different

retail power suppliers required to sustain uniform retail power tariffs is to be achieved by charging

different wholesale power supply tariffs to different retail power suppliers. The adjusted wholesale

tariff differs between retail power suppliers with higher revenues and lower costs paying a higher

wholesale tariff to allow a lower wholesale tariffs for retail power suppliers lower revenues and higher

costs.

4.4.16 The draft tariff regulations have also been intentionally kept as simple as possible to minimize confusion

and reduce the difficulties of application when first applied. Overall, the draft tariff regulations

comprehensively address this topic with sufficient detail and flexibility for tariff regulation to be

workable and effective. The detail in the draft proposed tariff regulation as to how each type of tariff is

to be calculated will improve the transparency of the tariff regulation; which should overtime engender

increased public confidence and willingness to accept raising tariffs as tariffs are increased to costs of

electric power supply an service.

Investments, Power Procurement and Resource Acquisition Regulations

4.4.17 The draft regulations regarding investments, power procurement and resource acquisitions are

intended to transition power sector participants into the performance of forecasting, least cost

planning, and acquisition of assets and resources required to satisfy their respective service obligations.

This transition is to achieve the two objectives of, (i) helping to ensure power sector participants obtain

the resources and facilities required to satisfy their respective service obligations at lowest reasonable

cost; and (ii) promoting efficient and coordinated planning for the power sector.

4.4.18 These objectives are to be achieved by these draft regulations requiring most all power sector

participants to annually forecast future growth in demand for their respective electric power services

and, for those participants with captive customers, requiring, (i) the annual preparation of a multiyear

Investment, Power Procurement and Resource Acquisition Plan for MOEP review and approval; (ii)

MOEP permission to procure power from a specific source or supply of power; and (iii) obtain MOEP

approval of power purchase agreements before execution.

4.4.19 The draft regulations acknowledge the difficulties associated with the implementation of the foregoing

requirements. The Electricity Rules require MOEP to, (i) develop a forecasting methodology and


guidance thereon to be applied by power sector participants; and (ii) annually prepare the National

Power Development Plan with which the investment, power procurement and resource acquisition

plans of power sector participants must be demonstrated to be consistent.

4.4.20 However, until MOEP has issued its forecasting methodology and guidance, forecasting by power sector

participants will involve simple expansions of supply side resources, and the MOEP shall approve

forecasts if it concludes that, (i) the methodology used was reasonable and properly performed; and

(ii) the assumptions underlying the forecasts appear reasonable and not imprudent. At such time as the

MOEP issues its forecasting methodology and guidance thereon, forecasting will thereafter be based

on Integrated Resource Planning.

4.4.21 The filing requirements and standards governing MOEP approvals specified in these draft regulations

should over time achieve the objective of helping to ensure power sector participants obtain the

resources and facilities required to satisfy their respective service obligations at lowest reasonable cost.

4.4.22 However, the capability of these regulations to achieve coordinated, efficient and comprehensive

planning for the power sector is more problematic. To achieve this objective would require the

establishment of a sequential and iterative process with procedures that integrate forecasting and

resource planning performed by multiple power sector participants. Other than requiring all forecasts

and resource acquisitions to be filed with MOEP annually before 31 October, these draft regulations do

not address the process and procedures to be followed by power sector participants in performing

forecasting and resource planning. However, this shortcoming needs not delay issuance of these

regulations. Communication among power sector participants responsible for transmission,

distribution and purchasing power from generators that remain government-owned should mitigate

the risks associated with the lack of regulatory mechanisms to achieve coordinated and integrated

planning for the power sector.

Competitive Tenders and Solicitations Regulations

4.4.23 The draft competitive tenders and solicitations regulations are based upon guidance on implementing

competitive bidding for power projects specifically tailored to Myanmar as prepared by Deloitte

Touche. Notwithstanding time constraints due to delayed receipt of this guidance, the DG and Steering

Committee produced draft regulations that would set forth a workable bidding regime able to impose

competitive discipline on unsolicited projects and their proponents. The type of bidding regime to be

e plo ed is alled a “wiss challenge, a d is desig ed to put unsolicited projects up for competitive

bid; whereby such projects can be awarded to a party other than the original proponent of the project

provided the winning bidder pays compensation to the proponent equal to the amount of

compensation the proponent would have had to agree to when it signed the MOU with MOEP.

4.4.24 The bidding regime that would be put into place by these regulations would key off of unsolicited

eligi le p oje ts. Eligi le projects are required to have been assessed by the MOEP and, if considered

technically feasible and consistent with Myanmar power sector master plan, are designated by MOEP

to be considered for development by competitive tender.

4.4.25 The p o ess fo dete i i g that a p oje t is eligi le a d desig ated the MOEP as appropriate for

development of by competitive tender needs to be completed early in the project development effort,

since the amount of compensation to be paid to the proponent, if the subject project is awarded to

another person, must be set forth in the MOU to be executed by the project proponent to obtain

authorization to proceed with the feasibility study and the performance of other pre-tendering works.


4.4.26 Transparency of regulation and private sector participation in the power sector will be advanced by the

requirement in the draft tenders and solicitations regulations for the Ministry to publish notice of

competitive tenders in at least two national newspapers, two international English newspapers, the

Minist s e site a d othe print and digital media, as it deems fit, thus inviting participation from

prospective bidders.

4.4.27 These draft competitive tenders and solicitations regulations would require the RFP, the project

feasibility report and other development studies and documentation prepared by the proponent of the

unsolicited project, the amount of compensation to be paid to the project proponent if the subject

project is awarded to a third party, and the standard bid documentation prepared by the MOEP to be

distributed to all of the shortlisted bidders.

4.4.28 Upon the selection of the preferred bidder, the proponent of the unsolicited project shall be informed

of the terms, conditions and tariff offered by the preferred bidder and the proponent of the unsolicited

project may match such offer. If the proponent of the unsolicited project fails to elect in writing to

match the offer of the preferred bidder, the subject project shall be awarded to the preferred bidder

subject to the requirement that the preferred bidder pay compensation to the proponent as specified

in MOU.

4.4.29 As is evident from the foregoing, the draft competitive tenders and solicitations regulations are

comprehensive and workable, but should still more properly be viewed as a work in progress that

requires some refinements ideally before these regulations are issued and become operational.

4.4.30 First, process and procedures need to be put into place for obtaining projects from the MOEP such as

(i) determination that a u soli ited p oje t is eligi le , a d ii) after completion of the pre-tendering

o ks of the p oje t p opo e t, desig atio that the u soli ited eligi le p oje t is appropriate for

development by competitive tender. It is critically important to define the process for obtaining a

dete i atio that a p oje t is eligi le, as any delays caused by confusion as to the process would

likely lengthen the approval period and increase the project development costs.

4.4.31 Second, guidance needs to be provided as to how the amount of compensation to be paid to the

proponent, if the project is granted to a third party, is to be determined to limit the period of time

required for project proponents and the MOEP to negotiate the compensation amount to be set forth

in the MOUs to be executed by MOEP and project proponents.

4.4.32 Third, the draft competitive tenders and solicitations regulations require bidding proposals to be

submitted in two parts, a technical proposal and a financial proposal. However, clarification is required

as to the basis for evaluating both types of proposals, and how the evaluation of both types of proposals

are to be integrated together in order to select the preferred proposal.

ERC Procedures

4.4.33 The draft ERC Procedures essentially combine into a single document the rules related to the ERC that

were included in the Initial Version of the Electricity Rules but were deleted from the final version

submitted to Parliament for approval. These draft rules reflect the significant efforts required in

preparing the Initial Version of the Electricity Rules. There is no doubt as to the likely effectiveness of

these draft procedures had the ERC been given a role in performing regulatory tasks. However, these

draft procedures have limited significance as long as the ERC remains uninvolved in regulation.


4.4.34 However, it would be a mistake to forget these draft procedures since they will again become important

once the ERC is involved in performing regulation; as would be the case if MOEP requests

recommendations from the ERC on regulatory actions or decisions to be taken by MOEP.


Chapter 5

Preparation of Rural Electrification Law and Implementing Regulations (Phase 1- Task 2 and Phase 2- Task 2)


5.1.1 The DFDL Consulting Team has been charged by the TOR to prepare a Rural Electrification Law and its

implementation regulations in order to accelerate rural electrification in Myanmar. Work on the Rural

Electrification Law was initiated during the fourth month of the Project. Initial efforts focused on

identifying, (i) the Myanmar governmental institutions involved in rural electrification; (ii) past

Myanmar governmental efforts regarding rural electrification; (iii) problems encountered with rural

electrification within Myanmar; and (iv) successful rural electrification efforts in other countries. Efforts

also included identifying rural electrification laws from those countries that have achieved success at

accelerating rural electrification.

5.1.2 As related above, the efforts of the DFDL Co sulti g Tea s ega di g the Rural Electrification Law have

been handicapped by the low priority placed on this task by the MOEP and the difficulty failure of the

Government to to designate a counterpart within the government to work with the DFDL Consulting

Team. Nonetheless, notwithstanding the difficulties encountered, the DFDL Consulting Team had

prepared and delivered to the MOEP and the ADB in mid-February 2015 the following work products:

a. Memorandum on Options for Rural Electrification Based on Foreign Experience of Selected

Countries; See Item 22 of Appendix F

b. Memorandum on Challenges of Rural Electrification on Myanmar, Reform Objectives and

Recommendations as to the Content of the Rural Electrification Law; See Item 23 of Appendix F;

and

c. Memorandum of a Country Comparison Matrix of Rural Electrification Reforms and Projects. See

Item 24 of Appendix F.

5.1.3 The ADB shortly thereafter concluded that drafting the implementing regulations for a new Rural

Electrification Law was not practical since the MOEP and the Government had not decided on the

substance of the new law.

5.1.4 Due to the foregoing factors, the ADB in late February 2015 deemed DFDL performance of work related

to rural electrification as set forth in the TOR (Phase 1-Task 2) and Phase 2-Task 2) to have been

satisfactorily completed. Nonetheless, to address the questions and comments from the ADB, received

by the DFDL Consulting Team in September 2015, the foregoing work product was revised as of October

2015 and is attached hereto as Appendix C.

5.1.5 Despite the foregoing tasks having been deemed complete by the ADB, to reignite interest in the rural

electrification efforts of the DFDL Consulting Team and the draft Rural Electrification Law, it was

suggested by the ADB that a Rural Electrification Workshop be held for the relevant government

ministries and other stakeholders.


This workshop was intended to focus the relevant government ministries and other stakeholders on

the electrification report and the draft Rural Electrification Law prepared by the DDL Consulting Team

to initiate ta diologue regarding the need for and content of such a law. This workshop was tentatively

scheduled for 25 February 2016 as the final task for this Project. However, the change in the

goveerment, the need to appoint new Ministers, and the retirement of the DG of the Department of

Electric Policy of MOEP required this workshop to be postponed until later in 2016. The presentations

prepared to be given by the DFDL Consulting Team at this third workshop are set forth as Items 27 and

28 of Appendix F.

5.2 Background

5.2.1 The Myanmar National Electrification Plan (NEP) sets forth the commitment of the Myanmar

Go e e t to ele t if % of M a a s households . With o l app o i atel % of the households having been electrified to date, this is a daunting challenge. In its report to the World Bank

e titled M a a National Electrification Plan ‘oad ap a d I est e t P ospe tus dated Jul the Castalia ‘epo t , Castalia epo ted that to a hie e this o je ti e o e tha . illio

households would need to be electrified by grid extensions over the next 16 years; together with

another app o i atel , te po a p e-ele t ifi atio o e tio s ade th ough i i-grid

and household installations of solar panels.

5.2.2 Recent experience in other countries demonstrates that the most effective and efficient way to

achieving a rapid increase in electrification is through a coordinated sector-wide approach. Although

the consensus remains that most connections will be the result of grid extensions, virtually every

country for which electrification remains a top priority has or is revising its efforts based upon the

conclusion that greater access to grid-based electrification is best accomplished using a sector wide

approach combining a centralized and a decentralized track. The key features of a sector-wide

programmatic approach are:

a. Organize rural electrification around a comprehensive technically least-cost plan for grid, mini-grid

and individual household-level connections. In practice, this means ensuring that the plan is

constantly updated and refined, and that actual projects follow the plan, in terms of what, where

and when gets built;

b. Funding flows must be predictable. For the technical plan, there must be a clear, comprehensive

and multi-year funding and financing plan. The institutions implementing the program must all play

their role in ensuring that the flow of funds keeps the program moving. This will require a high

degree of coordination with direct involvement by key political decision-makers;

c. Plan implementation must be standardized and simplified, so that procurement and other

necessary activities can be carried out without delay and at low transaction costs;

d. Must be able to utilize private and community resources.

5.2.3 Institutions will play a critical role in shaping how the NEP will be delivered. In particular, institutions

need to be designed to ensure, (i) there are sufficient funds flowing into the overall electrification

program; (ii) there is coordination of funding, such that funding is reaching projects that are prioritized

on a least-cost basis, being built efficiently and are achieving social objectives; and (iii) a clear pathway


for private sector participation within that framework will be necessary to increase the probability of

sufficient funding and efficient implementation.

5.3 Challenges and Impediments to Rural Electrification

5.3.1 A key question requiring an answer is wherther enactment of a rural electrification law is really

necessary. The DFDL Co sulti g Tea s assess e t of this uestio is that a e u al ele t ifi atio law is not required for electrification to be accelerated by the participation of private investors. The

DFDL Consulting Team believes that an Small Power Producer (SPP) Program can be established by

MOEP without any new legislation. However, based on a review of the literature, reports, assessments

together with discussions with the MOEP, the Ministry of Livestock, Fisheries and Rural Development

(MLFRD), and other government institutions and international bilateral and multilateral organizations,

the DFDL Consulting Team concurs with the Castalia Report that successful implementation of a sector

wide approach will require fundamental institutional reforms and comprehensive solutions of a nature

which requires a statutory mandate.

Lack of Communication and Coordination between Government Institutions:

5.3.2 The Castalia Report concluded that the Myanmar government is not institutionally equipped to

implement rural electrification on a programmatic sector wide basis. Multiple government institutions

are responsible for different aspects of rural electrification, including the MOEP, the MLFRD, the

Ministry of Energy (MOE), the Ministry of Agricultural and Irrigation (MAI), the Ministry of Science and

Technology (MOST) and Region and State governments. The ESE of the MOEP does extension of existing

lines while the Department of Rural Development of MLFRD does off-grid housing, and Region and State

governments are responsible for the generation facilities less than 30 MW not connected to the

national grid. Communication and coordination among these government institutions is reportedly

weak to non-existent.

5.3.3 The Myanmar Government has sought to address this lack of communication through the

establishment of ministerial committees, including the National Energy Management Committee

(NEMC), which is charged with drafting energy regulations, developing short and long-term energy

plans, and adopting pricing policies across all energy sectors, and the Rural Electrification and Water

Supply Committee (REWSC), which is to take the lead and develop targets for all power sector entities

able to develop and implement rural energy projects. These committees are comprised of

representatives of the various ministries which have electrification-related responsibilities.

5.3.4 However, these ministerial committees appear to be ill-suited to provide the coordination and control

required to implement rural electrification on a programmatic sector wide basis. Sector wide

coordination requires the capability to revise and re-prioritize the activities and budgets of the

individual ministries responsible for electrification. REWSC and other ministerial committees are not

able to serve this function.

No Mechanism for Coordinating Planning and Funding Decisions:

5.3.5 There is no institutional mechanism that pulls together the various funding and financing sources into

a cohesive and comprehensive program and allocates the resources available to the government on a

prioritized basis among the different programs through which the government is pursuing rural

electrification.


5.3.6 Decisions about setting electricity tariffs and the funding of grid extension by ESE and other

electrification efforts are not coordinated. Tariffs are not linked to the costs of expanding electricity

services and electrification. Decisions on matters that should be taken together, such as the amount of

revenue required, the acceptability of tariff levels, and the financial conditions of the power sector, are

taken in isolation from each other. Government institutions separately decide the amount of funds

available for capital investment based upon their respective then current fiscal constraints.

5.3.7 As noted in the Castalia Report, the Government has limited mechanisms to assess and prioritize

various contributions it makes to the overall sector development. Although the Ministry of Finance

would appear to be the logical choice for assuming such responsibility, the Castalia Report concluded

that since the Ministry of Finance has different erti al udget appro als for ea h i istry ith funding for various aspects of electrification spread across different ministry budgets, it is difficult for

the Ministry of Finance to form a comprehensive view of how various activities contribute to the overall

program.

5.3.8 I additio , [s]ince Union and Regional Government budgets are formed separately, and since there

are barriers to coordination between Regional and Union budgets (for example, Union funding has to

be spent via Union-level procurement agencies and cannot be channelled [sic] to locally implemented

projects), there is considerable risk that local and Union-level electrification projects could be at cross-

purposes to each other.

5.3.9 In sum, existing government institutions and rural electrification efforts are based upon project-by-

project reviews. This focus needs to be shifted away reviews towards a comprehensive sector wide

e ie of the go e e t s u al ele t ifi atio effo ts. To a hie e this efo us e ui es i teg ating

technical planning with the formulation and management of a financial plan which consolidates all

government financial support for rural electrification and allocates such financial support across all

government rural electrification programs on a prioritized basis to achieve sector wide objectives,

preferably in accordance with the principles of least cost.

Lack of Rural Electrification Master Plans:

5.3.10 Myanmar approved the NEP at the end of 2014. However this plan is not complete. First, the NEP needs

to prioritize household and mini-grid installations in addition to grid extensions. Second, the NEP does

not assign connection targets to those power sector entities responsible for such connections. Third,

the NEP does not address the financial resources available for electrification and how such financial

resources should be allocated among the electrification programs. Such plans need to be prepared each

year. It is unclear whether the Government has personnel able to prepare such plans.

ESE and YESC Ill-equipped to Accelerate Grid Extensions:

5.3.11 The reports reviewed suggest that ESE and YESC in their current form are unlikely to achieve higher

rates of electrification due to the following factors:

a. Limited Operational Flexibility and Ability to Plan. The Castalia Report concluded that the

Accounting Policies for State-Owned Enterprises (2012) require key spending decisions to be

included in the Union budget and deprives ESE and YESC of the freedom needed to manage their

balance sheets.


b. Limited Performance Incentives. State-owned enterprises implement state budgets and directives

and are not commercially motivated. Since they are not driven by commercial objectives, ESE is not

susceptible to performance incentives to increase the efficiency of electrification.

c. Limited to No Access to Debt Financing. Apart from limited access to public sector loans, ESE and

YESC, prior to its corporation, cannot obtain debt financing.

d. Uncertain Recovery of Electrification Costs. Although enactment of the new Electricity Law and

prescription of its implementing rules may improve the situation, there is as of yet no assurance

that ESE and YESC can charge cost reflective tariffs and will be able to recover the costs of

accelerating grid extensions. The requirement for parliamentary approval of tariffs creates

considerable uncertainty year to year as costs to ESE and YESC are unable to be recovered by means

of retail power sales, and there is no mechanism to ensure the government will provide subsidies

to cover revenue shortfalls due to the incurrence of electrification costs not recovered from retail

power sales.

Thus, electrification by means of grid extensions by ESE and YESC can only be implemented at a

pace that reflects the pace at which the Union Government provides financial support in the form

of subsidies to ESE and YESC for such activities.

Household Electrification Not Prioritized and Unlikely Sustainable.

5.3.12 The M a a Go e e t s off-grid electrification efforts are currently limited to household-level

solar electrification implemented through the Department of Rural Development (DRD) of the MLFRD.

Under this program, solar home systems are granted to recipients with a 100% subsidy being provided.

The DRD undertakes contracts with private companies to install village-level solar home systems (SHS)

and to provide training to local people for the utilization of the system.

5.3.13 Studies and reports regarding household level electrification programs in a number of countries

indicate several factors that are important to improving efficiency and sustainability of such efforts.

These factors include (i) households incurring a percentage of the costs of the installation and operation

of household systems; (ii) generation of sufficient revenue to contribute to on-going costs and to be

financially sustainable; (iii) such programs being designed so that once installed, the household systems

continue to operate as designed; and (iv) targeting such programs to those areas where household level

electrification is the most economic electrification option.

Absence of Union Government Support for Mini-Grids.

5.3.14 At present, other than the single 10 kW micro-hydropower project developed by the DRD of MLFRD

and further plans to implement 129 micro-hydropower and eight biomass projects this year, there are

no government programs to support the installation of mini-grids, a d o ea s to e su e that bottom

up efforts regarding mini-grids are implemented consistent with least cost rural electrification.

Furthermore, as noted in the Castalia Report, since there is no standard format or process for

developing mini-g ids, e e p oje t effe ti el has to e-i e t the heel a d o e up ith its o institutional design, technical plans, legal documentation and financial proposal.

5.3.15 In light of the small size of mini-grids, the transaction costs associated with the lack of a standardized

format and process quickly erodes the profit margins on these projects rendering investment

uneconomic. Also, the absence of a Union Government program for mini-grids means that there is no


mechanism for the Union Government to support the development of off-grid mini-grids. This is a

significant oversight given the expectation that even with the successful achievement of the

Go e e t s a itious p og a of electrification by grid extensions; more than one million

households will not be viably connected to the grid for at least a decade or more.

No Bottom-Up Rural Electrification Projects or Programs.

5.3.16 As with many countries, the Union Government has implemented a national electrification strategy

that relies almost entirely on extensions of existing medium voltage transmission and distribution lines

by the MOEP. The current rural electrification strateg thus ep ese ts solel a top do approach,

or centralized track for electrification, because only central government institutions are responsible for

electrification.

5.3.17 By contrast, the decentralized track is a bottom-up approach because electrification projects are

generally carried out through the efforts of non-governmental entities, such as cooperatives,

community user groups, or private entrepreneurs, and are organized at the community level outside

the planning efforts of the central government. The lack of any bottom-up program results in lost

opportunities to yield the benefits from community initiatives and private sector participation in rural

electrification.

Lack of Debt Financing for Rural Electrification Projects.

5.3.18 The capability to obtain debt financing for rural electrification from both private and public sources is

severely constrained. The government does not provide loans for the development of rural

electrification projects by local communities, private companies or non-governmental organizations.

5.3.19 In regards to private sources of financing, the reports reviewed by the DFDL Consulting Team noted

that the following factors limit the availability of debt financing: (i) the limited development of the

Myanmar banking system; (ii) the unavailability of loans for periods longer than 2 to 3 years; (iii) the

difficulties of refinancing debt; (iv) the lack of experience of Myanmar banks with the use of project

finance for infrastructure projects; and (v) the lack of interest of international commercial lenders for

rural electrification without significant power sector structural reforms, such as commercialization of

MEPE and ESE and the creation of an effective power sector regulatory authority. These constraints

taken together mean that debt financing to reduce the costs of rural electrification, particularly with

regards to connection costs, cannot be utilized.

Lack of Training for Local Communities.

5.3.20 Installment and operating of solar panels and wind turbines needs prior training. The Castalia Report

estimates both the private and public sectors in Myanmar are likely to be short of approximately 1,000

trained electrical workers required for the implementation of any electrification plan. Castalia

estimates that it will take up to two years to train the required personnel, with ongoing commitment

to training in the future. Capacity building of rural communities, including training, may allow the

establishment of more mini-grids in rural area and overall increase of the rural electrification rate.


5.4 Recommended Content for New Rural Electrification Law

Objectives:

5.4.1 A coherent, comprehensive and coordinated rural electrification program needs to be formulated and

implemented to address the foregoing challenges. To achieve this result, the following four objectives

should be the focus of reforms intended to promote and accelerate rural electrification:

a. A Union Government institution is needed that will take lead responsibility and control of rural

electrification programs and efforts;

b. Grid-based electrification, by extension of the national grid, needs to be made more efficient and

allow private sector participation;

c. Support for the implementation of mini-grids should be increased and must be better coordinated,

both to achieve the benefits of standardization and to ensure that money follows appropriate

projects;

d. Household level electrification programs require reform to make implementation more

sustainable and efficient.

5.4.2 The reforms and content for the Rural Electrification Law recommended below are all targeted to

achieving the foregoing objectives. The reforms and content recommended are not novel or unique to

Myanmar, but are rather drawn from literature, reports and assessments regarding rural electrification

in other Asian and African countries facing electrification challenges comparable to electrification

challenges in Myanmar.

5.4.3 In these countries, the consensus is that the following institutional reforms have contributed

significantly to the accelerated pace and success of electrification. By way of examples, Items 23 and

24 of Appendix F identify those reforms that have been successfully implemented in other Asian and

African countries most comparable to the following recommendations:

Establishment of Lead Government Institution Responsible for Rural Electrification

5.4.4 As noted above, communication and coordination among the multiple government institutions who

have responsibilities for rural electrification is quite weak in Myanmar. Also, the Go e e t s efforts

to address this problem through the creation of ministerial committees have proven to be largely

ineffective. Ideally, this problem should be solved by creating a new ministerial level government

institution that would be responsible for all rural electrification efforts. However, all of the reports on

government policies on rural electrification state that the government is not willing to create such an

institution.

a. As such, to address this problem, the new Rural Electrification Law should alternatively create

or upgrade an existing ministerial committee to be the lead government institution responsible

for rural electrification. This government institution needs to be able to render the decisions

required to coordinate, prioritize and supervise all aspects of electrification.


b. The new Rural Electrification Law should restructure any ministerial committee to be an

institution focused on making such decisions with the statutory authority, sufficient resources,

and sufficient politi al pull to ensure that these tasks are achieved.

c. The new Rural Electrification Law should establish this government institution within the Offices

of the Vice President and define the authority, and responsibilities of this government institution

with specific reference to the activities of all the other government institutions assigned rural

electrification responsibilities, including the relevant Union ministries (such as MOEP, DRD, MOST)

and State and Region governments.

d. The new Rural Electrification Law should assign to this government institution the following

responsibilities:

i. The annual formulation of the National Rural Electrification Master Plan (including budget,

funding sources and allocation of government financial assistance) for submission to

Parliament;

ii. Prioritization of rural electrification efforts of other government institutions (such as MOEP

and DRD) in coordination with State and Region governments;

iii. Based upon information provided by MOEP, annually identify those townships and villages

that are expected to become connected to the national grid over the next five and ten years;

iv. Annually set targets for each of the immediately following five years for the connections to

be made by ESE ad YESC by means if grid extensions;

v. Establish government policies regarding financial support for rural electrification in the

aggregate and for individual programs and identify the anticipated sources of funding

therefore;

vi. Supervise the administration by its Executive Secretariat of the Rural Electrification Fund;

vii. Recommend tariffs to the MOEP for on grid SPP power sales to MEPE, YESC and ESE and retail

power sales by isolated SPPs;

viii. Serve as the main point of contact with international donors;

ix. Establish SPP eligibility criteria;

x. Establish eligibility criteria for obtaining government financial assistance; and

xi. Establish and implement a public awareness campaign to enhance support of the rural

electrification programs.

e. There are only two candidates for the ministerial committee to be designated to coordinate and

direct all electrification efforts, the National Energy Management Committee and the National

Electrification Executive Committee. We recommend that the National Electrification Executive

Committee be so designated. The scope of the responsibilities already assigned to the National

Energy Management Committee is already overwhelming and rural electrification would likely not


get the atte tio this topi a a ts gi e the go e e t s o it e t to ele t ifi atio . Also, importantly, the National Energy Management Committee is not structured to render difficult

decisions on any kind of a timely or predictable basis. The size of the membership of the National

Energy Management Committee is simply too large to make decisions other than on the basis of

consensus. There are therefore no procedures for making formal decisions.

f. Given the high profile of the National Energy Management Committee, fundamental revisions to

the structure and procedures are highly likely to be resisted. In contrast, resistance to modifying,

by the Rural Electrification Law, the structure and procedures of the National Electrification

Executive Committee (referred to for the balance of this ‘epo t as the Co ittee , should e less so.

g. To render the Committee capable of making decisions, the Rural Electrification Law should specify

Committee membership of no more than eleven members comprising of, (i) the Chairman,

appointed by the Office of the Vice President, (ii) the Director General of the Executive Secretariat,

and representatives of (iii) the Ministry of Electric Power, (iv) the Department of Rural

Development, (v) Ministry of Energy, (vi) Ministry of Finance, (vii) the Energy Development

Committee on behalf of the National Energy Management Committee, (viii) the State government

with the lowest percentage of electrification, (ix) the Region government with the lowest

percentage of electrification, (x) local communities appointed by the Offices of the Vice President,

and (xi) equity and debt financial institution.

h. The Rural Electrification Law should also define the quorum required for Committee meetings to

be held and the voting requirements for rendering affirmative decisions. It is recommended that a

quorum of six members present in person, by phone or by proxy to properly hold a meeting of the

Committee with affirmative decisions of the Committee requiring a majority of the members

attending duly constituted Committee meetings.

Establishment of Executive Secretariat:

5.4.5 The new Rural Electrification Law should establish a well-resourced government institution (an

E e uti e “e eta iat to p o ide the p ofessio al a d ad i ist ati e staff e ui ed to suppo t the activities of the Committee. The new law should specify the responsibilities of this office.

a. These responsibilities should include: (i) after consulting with relevant power sector stakeholders

(including international donor institutions) and relevant governmental institutions (including State

and Region governments, MOEP, DRD, ESE and YESC) and information requested of same by this

office, prepare drafts of all documents required to be prescribed by that ministerial committee,

including the annual National Rural Electrification Master Plan and required the eligibility criteria;

(ii) administer the Rural Electricity Fund; (iii) prepare tariff proposals for that ministerial committee

to submit for consideration by the MOEP; and (iv) to undertake the coordination function. The

Executive Secretariat must be able to work directly with all relevant institutions, such as MOEP,

DRD and ERC. M a a s de elop e t pa t e s should o side p o idi g su sta tial te h i al assistance funding to supports the Executive Secretariat.

b. The Executive Secretariat could be an enhanced version of the DRD or be located within the Office

of the Vice President. Locating the office withi Vi e P eside t Offi e is p efe ed because an

enhanced DRD would be accountable to both its Ministry and the Committee established by the

new law as the lead government institution for electrification; whose interests may differ.


Requirements for Preparation of the Annual National Rural Electrification Master Plan:

5.4.6 The new Rural Electrification Law should specify how the annual National Rural Electrification Master

Plan is to be prepared. The requirements set forth in the new law would address: (i) both process and

substantive content; (ii) the prioritization of grid extensions, mini-grid installations and household

electrification based upon least cost; and (iii) amount and sources of funding. The requirements

regarding process are to specify how State, Region and local governments will be integrated into the

formulation of the National Rural Electrification Master Plan.

Coordinating Tariffs with Funding of Rural Electrification:

5.4.7 There is no institutional structure for coordinating decisions about setting electricity tariffs and the

electrification objectives. Decisions on matters that should be taken together (such as the amount of

revenue required, the acceptability of tariff levels, and the financial conditions of the power sector) are

taken in isolation from each other. Government institutions separately decide how much capital

investment is possible in the sector on the basis of its current fiscal constraint.

5.4.8 The new Rural Electrification Law could require the MOEP to take these factors into account in

determining tariffs. Also, the new law should authorize and perhaps require the ministerial committee

established by the new law, as the lead government institution for electrification, to submit to the

MOEP recommendations as to appropriate tariffs required to achieve electrification objectives.

Directive to Revise Program for Household Electrification:

5.4.9 The Government needs to move the household electrification program from the relatively

unsustainable giveaway of solar systems to an arrangement where customers are provided with energy

supply by firms that maintain and operate household and village systems. Customers would pay for the

energy they receive. Private providers would use revenue to cover the costs of maintenance. The

Government would provide subsidies to ensure that tariff revenues are sufficient to cover the costs of

the p i ate ope ato . “u h a shift ill e pa ti ula l i po ta t to suppo t the p e-electrificatio program.

ESE and YESC: Cost Recovery, Subsidies and Connection Costs

5.4.10 The most important reforms required are the corporatization and commercialization of YESC and ESE,

their ability to collect and retain revenue, the funding of connections, and the implementation of cost-

reflective tariffs. These reforms are required for YESC and ESE to operate as independent commercial

entities able to conduct financing operations on their own balance sheets and able to make

independent decisions about staffing levels, pay and other resources. These reforms are beyond the

scope of a new law on rural electrification. However, statutory change does not appear to be necessary

as the Government appears to have already initiated these reforms with its corporatization of YESC, the

enactment of the new Electricity Law expressly authorizing corporatization of government power

institutions, and the mandate to establish the ERC.

5.4.11 Nonetheless, the Castalia Report and other literature reviewed recommend that the following more

modest reforms can be achieved by the new Rural Electrification Law. The new law could require that:

a. consumers be allowed to pay off connection costs over a number of years rather than having to

paid at one time;


b. the cost of electrification incurred by YESC and ESE to be recovered each year by the revenue

generated by retail tariffs combined with government subsidies. This could be achieved by first

determining the cost of service of electrification for ESE and YESC, then determining the percentage

of such costs that are to be recovered through retail tariffs, with the balance of such costs covered

by means of an annual subsidy payment from the Government. There are precedents in other

countries for this approach;

c. the cost of new connections to e i luded o the utilities ala e sheet a d, he it e o es possible, debt financed rather than funded either entirely by connection fees charged consumers

o E“E s a d YE“C s o esou es; a d

d. short-term changes to be made to the budgeting process for YESC and ESE to facilitate more

independent commercial decision-making and to encourage and enable both to borrow on the

basis of their balance sheets, including five-year budgets for ESE and YESC in line with the rural

electrification plan, so that the utilities can commence medium-term planning.

5.5 Rural Electrification Programs

5.5.1 These programs are designed to foster the participation of communities and the private sector in

electrification, particularly but not limited to isolated grids. The private sector is already involved in

delivery of distribution and retail power sales.

5.5.2 Two types of programs should be mandated by the new Rural Electrification Law: (i) Small Power

Producers and Distributors; and (ii) Distribution Sub-Franchises and Subcontractors.

Small Power Producers and Distributors Program (Grid Connected or Isolated)

5.5.3 The first program, the Small Power Producers and Distributors (SPP) Program, could accelerate the

development of micro-grids, particularly those that are electrically isolated. Although only a very small

percentage of households are so remote that grid extension will never be an economically viable

approach for electrification, electrically isolated mini-grids are expected to play an important (although

temporary) role for townships and villages that must wait years to obtain electrical access by means of

the national grid.

5.5.4 In a growing number of developing countries, SPP programs are emerging as a meaningful complement

to grid extensions as a means to accelerate rural electrification by promoting both, (i) the addition of

needed new generating capacity; and (ii) the establishment of electrically isolated mini-grids that will

serve consumers until such time as such consumers can access electric power by means of grid

extensions.3

3 For an excellent summaries of SPP regulatory options for Myanmar and the characteristics of Small Power Producer

programs throughout the developing world and the regulatory issues to be confronted in establishing and implementing

su h p og a s, please efe to, espe ti el , “PP ‘egulato F a e o k Optio s i M a a , Fi al ‘epo t to the International Finance Corporation, by Chris Greacen (July 2014) and F o the Botto Up- How Small Power Producers

and Mini-g ids a deli e Ele t ifi atio a d ‘e e a le E e g i Af i a by Bernard Tenenbaum, Chris Greacen, Tilak

Siyambalapitya and James Knuckles, published by the World Bank (2014).


5.5.5 Initially, SPP programs begin as a mean to encourage the use of renewable resources and particular

technologies. Development of such projects is promoted by the establishment of a legal and regulatory

framework which extends certain privileges to projects below a threshold size that use renewable fuels

or favored technologies. The privileges extended to such projects typically include:

a. an obligation on the part the local electric utility to purchase from such SPP projects all the power

such projects are able to generate at pre-specified prices that either reflect the avoided cost of the

purchasing utility (the price of power that such a utility would otherwise have to purchase or

generate if it had not purchased power from the SPP project) or reflect the generic cost of

producing power using the technologies used by the SPPs. In some countries, the purchasing utility

pays a levelized avoided cost and SPPs receive a stable technology-specific tariff with the difference

covered by funds committed by international donors;

b. streamlined regulation with minimal qualification requirements, standardized permits, minimal

service obligations, and no cost service regulation,

c. standardized documentation, including standardized power purchase agreements; and

d. the granting of certain financial investment promotional privileges, such as tax holidays, tax

reductions, tax credits, and exemptions from import duties and taxes.

5.5.6 More recently, SPP programs have been tailored to promote community and private sector investment

in off-grid mini-grids and grid extensions to implement rural electrification, particularly in regards to

electronically isolated mini-grids. This has been achieved by providing flexibility in the prices for power

charged to the customers of SPPs, the use of standardized power sales agreements between SPP

distributors and the communities they serve, and keeping regulation streamlined.

5.5.7 Indeed, those countries that are more concerned with extending rural electrification than with

promoting the use of renewable resources, SPP privileges are extended to all power projects below a

threshold size regardless of the fuels and technologies used by such projects. Indeed, the scope of

privleges extended to each project varies based upon project size. Table 5.5 sets forth the allocation of

SPP bebefits recommended for Myanmar.

SPP Program Qualifications:

Size Thresholds.

Table 5.5 Recommended Allocation of SPP Benefits

Project Size Grid

Location

Permitting

Authority

Tariff Basis

Larger than 30 MW On Grid MOEP Avoided Cost of Purchasing Utility or Generic Standardized Cost

Reflective Technology Specific Tariffs.

Larger than 30 MW Off Grid MOEP Generic Standardized Cost Reflective Technology Specific Tariffs.

Larger than 10 MW

but not larger than

30 MW.

On Grid MOEP Avoided Cost of Purchasing Utility or Generic Standardized Cost



Larger than 10 MW

but not larger than

30 MW.

Off Grid State and

Region

Governments

Generic Standardized Cost Reflective Technology Specific Tariffs.

Larger than 1 MW

but not larger than

10 MW.

On Grid MOEP Avoided Cost of Purchasing Utility or Generic Standardized Cost


Larger than 1 MW

but not larger than

10 MW.

Off Grid Township

Governments

Consideration to be given to exempting from regulation negotiated

tariffs for projects with demonstrated community support.

Tariffs for SPP Projects not exempt from regulation to be Generic

Standardized Cost Reflective Technology Specific Tariffs.

Not Larger than 1

MW.

On and

Off Grid

Township

Governments

Tariffs established by negotiations and not regulation.

5.5.8 A key question is what should be the threshold size for qualification as an SPP project. The threshold

will depend upon whether the purposes to be served by the SPP program are limited to the promotion

of small power projects or include the promotion of renewable energy and the characteristics specific

to each power system.

5.5.9 For programs whose purpose is to promote electrification, the thresholds are smaller to reflect the load

SPPs are expected to serve in rural environments. For programs that are intended to promote the use

of renewable fuels and technology, the thresholds are set higher to maximize the substitution of such

fuels and technologies for fossil fuels, yet small enough for SPPs not to cause system operational

problems. The reason for permitting projects that are grid connected or larger than 30 MW is that

electrification by means of grid extensions cn be implemented by private investors; so that the rol of

private investors is not limitd to off-grid electrification.

5.5.10 System operational problems caused by the characteristics of specific projects are more likely to occur

as project size increases relative to the size of the power system. It is common to restrict the permissible

size of SPP projects to avoid project specific operational impacts.

Qualifying Fuels and Technologies.

5.5.11 SPPs focused on expanding rural electrification are typically able to use any fuel or technology without

restriction. However, for SPPs intended to promote use of renewable resources and technologies,

decisions are needed as to what and fuels and technologies are to be preferred. A determination is

also required as to whether projects which use a combination of preferred resources and technologies

and fossil fuels are to be permitted.4

5.5.12 To ensure consistency with the operations of the power system, it is not uncommon for generic

technical standards and requirements to be specified on a technology specific basis. Inspection and

certification that projects satisfy the foregoing requirements and qualify as SPPs will be required.

Grid Connection Capability.

4 In his report to the IFC on the options for SPPs in Myanmar, Chris Gleason reports that with steep reductions in the cost

of solar photovoltaic in the past several years, is it is cost-effective to consider upgrading Myanmar s 78 MW of stand-

alone diesel generators to become hybrid solar/diesel systems with battery storage. See “PP ‘egulato F a e o k Optio s i M a a , Fi al ‘epo t to the I te atio al Fi a e Co po atio Jul at page .


5.5.13 To facilitate grid extension and minimize inconvenience and cost, off grid distribution facilities, which

are likely to still be in use when SPPs that distribute and sell power to retail consumers (SPP Distributors)

become interconnected with the national grid. Such distribution facilities should be initially designed

and installed ready to become interconnected with the national grid. This will avoid consumers having

to pay for the original distribution facilities and then having to pay again to upgrade or replace such

equipment with equipment compatible with the grid. The cost of originally designing and installing

distribution facilities compatible with grid interconnection is estimated to only increase the cost of

distribution facilities by ten percent.

5.5.14 The key determinant regarding whether to install grid connection compatible equipment is apparently

not the size of the distribution network or mini grid, but rather the expected useful life of the off-grid

distribution facilities and the number of years before grid extension and connection is realistically

expected. If the useful life of the off-grid distribution facilities is shorter that the period preceding grid

interconnection, then installation of grid-compatible equipment is not economically viable.

Power Sales Price.

5.5.15 Another key question is what price SPP Distributors can charge to the retail consumers they intend to

serve. Retail power tariffs for off-grid and on-grid SPPs should reflect the costs of installing and

operating such SPPs. The answer to this question depends in part upon the size of the power project

and whether the project is off-grid or on-grid.

5.5.16 For the most part, the power sales price for very small and off-grid projects is left to negotiations

between the project sponsors (such as investors in the mini-grids) and the communities that they intend

to serve. Under such circumstances, the regulatory issue is whether very small and isolated mini-grids

are permitted to charge prices greater than the regulated retail prices charged to consumers that are

connected to the national grid.

5.5.17 A pre-requisite for success of such programs appears to be permitting the prices charged to consumers

served by very small and off-grid power projects (such as off system mini-grids) to exceed the

regulated prices charged to consumers that are connected to the national grid.

5.5.18 For very small off-grid SPPs, there should be a threshold (1 MW and below) below which retail power

tariffs are not regulated. For larger off-grid SPPs, but no larger than 10 MW, serious consideration

should be given to exempting retail power tariffs from regulation for power sold by off-grid SPPs for

which community support has been demonstrated by means of a Memorandum of Understanding or

retail power sales agreement between the relevant SPP and village electrification committees (VECs).

This is unless a specified percentage of the retail consumers to be served by that off-system SPP file

written protests with the relevant State or Regional government.

5.5.19 On-grid SPPs typically sell their power to their local utility at pre-specified prices that either reflect the

avoided cost of the purchasing utility (the price of power that such utility would otherwise have to

purchase or generate if it had not purchased power from the SPP project) or reflect the generic cost of

producing power using the technologies of the SPPs. Thus, although regulated, tariffs for power sales

by SPPs are not based upon the costs of each SPP. This approach provides significant advantages to

SPP projects by eliminating the need for project sponsors to negotiate with purchasing utilities project

specific tariffs. Also, since tariffs are not based upon the costs of each SPP project, efficiency


improvements in construction and operations directly improve profitability without the threat of

regulatory reductions in power sales tariffs.

Regulatory Policies.

5.5.20 To encourage SPPs, the Rural Electrification Law could also mandate the implementation of the

following policies in the regulation of the electric power sector under the Electricity Law, 2014 and the

Electricity Rules, 2015:

a. allow retail tariffs of SPPs to exceed the uniform national retail tariff if required to recover

investments in SPPs;

b. allow different retail tariffs to be applied to different customer classes of an SPP in order to permit

cross-subsidization between customer classes;

c. allow SPPs to make retail power sales to industrial and commercial retail consumers without

regulatory review and approval.

Interconnection of Off-Grid SPP Distributors.

5.5.21 A critical question is what happens when the consumers served by off-system SPPs become connected

with the national grid, and can then purchase power on-grid electricity at a price below what they were

paying to the SPP Distributors. In the event that the retail price charged by the off-system SPP exceeds

the retail prices charged to consumers connected to the grid, as is most likely to be the case,

interconnection by grid extensions could result in the SPP being left without a market for its produced

power. The possibility of such stranded investments could dissuade private investors from investing in

off-system SPPs.

5.5.22 The solution to this problem is for the legal framework put into place for the SPP programs to include

rules that address what is to occur when off-system SPP Distributors become connected to the national

grid. Most commonly, investors in off-grid SPPs are protected against the possibility of stranded

generation investments by an obligation on the part of the purchasing distribution utility to either, (i)

purchase the SPP power previously sold to SPP retail customers at the tariff previously paid by such

retail customers; or (ii) purchase SPP generation assets for compensation equal to book value. Attempts

may be made to reduce the financial obligations of the purchasing distribution utility by requiring SPPs

to explore alternative means to recover the remaining value of their SPP generation assets, such as

sales of such assets to third parties.

5.5.23 SPP investments in distribution facilities are not so problematic. Either the purchasing distribution

utility will purchase such facilities from SPPs or the SPPs will retain such distribution facilities and

become distribution utilities that buy power from the grid, and then resells such power to their its retail

customers. However, for the transition to go smoothly, SPPs should be required to build their

distribution facilities in accordance with pre-specified technical standards and requirements that

ensure that such facilities will be able to be interconnected with the national grid without technical

difficulties or excessive costs.

5.5.24 In sum, the new Rural Electrification Law should mandate the implementation of a SPP program that is

targeted to encouraging community and private sector investment in rural electrification and the

development of renewable resources and technologies. Our memorandum to the Director General of


the Department of Electric Power in MOEP dated 16 February 2015 compares the rural electrification

programs of selected countries set forth several recommendations as to the content of an SPP program

for Myanmar.

5.5.25 These recommendations are set forth in Item 24 of Appendix F. Importantly, the manner in which such

an SPP program is implemented will need to be consistent with the authority the new Electricity Law

that gives State and Regional governments the power to permit and regulate tariffs of off-grid small (up

to 10MW) and medium (10-30 MW) power projects. This should be achievable.

5.5.26 One viable approach would be for the MOEP and the MLFRD, under the supervision and direction of

the Committee, to prescribe standardized rules and standardized documentation to be used by State

and Region governments for off-grid SPPs, MOEP for on-grid SPPs, and for MOEP and DRD to provide

consultation services as appropriate to assist State and Regional governments.

Distribution Sub-Franchises and Subcontractors.

5.5.27 The second program focuses on accelerating the rate of grid connections by using sub-franchises and

subcontracts to attract private investment in distribution networks. This recommendation simply

expands the scope of private sector participation in distribution that is already becoming a reality.

5.5.28 Private companies as subcontractors of ESE are already involved in delivery of distribution services in

several Mandalay townships using leased distribution facilities with private companies engaging in

retail power sales, distribution service, billing and collection. Also, the Government has leased facilities

to support privately developed micro-grids. Expanding the role of the private sector in distribution

could significantly increase the speed of electrification.

5.5.29 In addition to private participation in the ownership of YESC and ESE, there are two other ways to

involve the private sector to development of distribution networks.

Subcontracts.

5.5.30 Private companies could assume responsibility for distribution networks by entering into sub-contracts

with YESC or ESE. The service obligations of the subcontractor, in terms of building and maintaining

distribution facilities and their provision of distribution and retail power service, should be set forth in

its subcontract with YESC or ESE. Such subcontractors should be reviewed and approved by MOEP and

ERC. If this approach is pursued, implementing rules will be needed to address the content of the

subcontracts and, the process by which subcontractors are selected. One topic that would be required

to be addressed is the respective responsibilities and liabilities of ESE and subcontractors for

subcontractor violations of legal requirements, Permit conditions and poor performance.

Sub-franchises.

5.5.31 Alternatively, private companies could be granted sub-franchises to provide distribution services within

defined geographic territories by means of a combination of distribution franchise permits issued by

MOEP and subcontracts with YESC or ESE. By issuance of such permits, such companies would become

Permitted Persons and subject to regulation as distribution companies to the same extent as ESE and

YESC.


Distribution Requirements.

5.5.32 Regardless of which approach is used, the following is required:

a. regulatory oversight to ensure distribution franchisees has the technical, managerial and financial

capabilities to provide distribution services and satisfy their legal and contractual obligations;

b. legal instruments, such as franchise permits and the subcontracts with YESC and ESE, to specify the

service obligations of the distribution franchisees, which include achievement of a defined number

of connections over a specified period of time, compliance with specified service standards, and

satisfaction of contractual obligations set forth in the relevant subcontract with YESC or ESE;

c. tariff arrangements and duration of franchise terms are to provide distribution franchisees the

opportunity to recover their respective distribution investments, operating costs, and the costs of

power procured to serve retail consumers.

5.5.33 Under franchise sub-contracts already in effect, YESC and ESE sell power to distribution franchisees at

prices below the retail tariff charged to consumers. The margin between the price charged to the

distribution franchisees and the retail tariffs charged to consumers is intended to provide the

distribution franchisees the revenue required for such franchisees, in combination with cost savings to

be achieved through improved efficiency and reductions in losses, to recover their respective

distribution investments and costs.

5.5.34 Since the required investments and operating costs are specific to each franchise territory, the price for

power sold to distribution franchisees will vary from franchisee to franchisee, even though the retail

tariffs to consumers may remain uniform. It has been recommended that the term of franchises should

be fifteen years to enable distribution franchisees to recover their distribution investments.

5.5.35 To the extent practical, distribution franchises should be required to be selected on a competitive basis.

For example, competition could be based upon the size of the margin between the power price to be

charged to the distribution franchisee and retail power tariffs, with commitments to reduce losses and

the number of connections to be achieved.

5.5.36 As to which of the foregoing two approaches is preferable, sub-franchising appears more attractive for

the government than subcontracting. Although the subcontractor may have to obtain a permit to

engage in distribution from MOEP, the regulation and specification of responsibilities of the private

company providing distribution is more direct and clear with sub-franchising.

5.5.37 Importantly, a new Rural Electrification Law need not directly address this topic. Distribution franchising

is already occurring. Indeed the regulations on the permitting of Permitted Persons are under

preparation by the MOEP and are intended to establish such a program and the requirements

applicable thereto. Therefore, for purposes of the implementation of distribution franchising, little

appears to be required of a Rural Electrification Law.

5.5.38 To foster the introduction of competition into the Myanmar power sector, the new Rural Electrification

Law should require distribution franchises, once determined by the MOEP to be practical and beneficial,

to be awarded by a competitive process. The process should be approved and the implementation

supervised by the MOEP.


5.5.39 However, although little may be required of the new Rural Electrification Law in regards to the

implementation of distribution franchising, the success of using distribution franchises to promote rural

electrification may depend on such a new law. Using distribution franchises to accelerate electrification

is depe de t upo su h f a hisees a ilit to o o o e to fu d dist i utio i est e ts. The Castalia Report explained that since the roll out program designed to achieve the Myanmar

go e e t s ele t ifi atio o je ti es is ased upo % fi a i g th ough o essio al fi a i g, there needs to be a mechanism for on-lending of concessional finance to distribution franchisees.

Although not strictly necessary, legislative endorsement of such on-lending will facilitate the

implementation of such a mechanism. The creation of such an on-lending institution is set forth below.

5.6 Rural Electrification Fund

5.6.1 As noted above, there is insufficient coordination of funding of electrification. The new Rural

Electrification Law should establish the institutional structure required to coordinate the allocation of

a government fund to support financing of rural electrifi atio the Fu d . As pa t of this i stitutio al structure, the new law should establish a government institution that would receive all government

funds for electrification, and through which all government financial support would be dispersed. This

responsibility should be assigned to the ministerial committee to serve as the lead government

institution for electrification, and assisted by the Executive Secretariat as recommended above.

This ministerial committee would establish the priorities for government funding of rural

electrification and the criteria to be applied in qualifying for such financial assistance. The fund would

be administered by the Executive Secretariat.

5.6.2 The new Rural Electrification Law shall specify the sources of funding for the Fund. It is recommended

that the sources of funding for the Fund should consist of: (i) annual budgetary allocation from

Parliament; (ii) contributions from international financial organizations, multilateral and bilateral

agencies and other development partners; (iii) from levies of up to three to five percent on the retail

power sales, as determined by the ministerial committee given lead responsibility for electrification, in

consultation with the MOEP, the ERC DRD and the Ministry of Finance; and (iv) fees in respect of

programs, publications, seminars, consultancy services and other services provided by the REMC

Secretariat.

5.6.3 The new Rural Electrification Law should also specify how the Fund is intended to be used. It is

recommended that the Fund be used to finance: (i) the capital cost of rural electrification grid extension

and off-grid electrification; (ii) the capital cost of solar home system equipment to be acquired for public

institutions; (iii) operational and maintenance costs of rural electrification projects, to the extent to

which it makes the projects viable; (iv) provision of credit guarantees for the capital cost of solar home

system equipment other than those to be acquired by a concessionaire; (v) any monetary contribution

required to be made by the Government for the implementation and execution of a donor-funded rural

electrification projects; (vi) the administrative expenses associated with the execution of the duties and

functions and responsibilities of the ministerial committee given lead responsibility for electrification,

the Executive Secretariat recommended above, and the management of the Fund; (vii) research and

consultancy assignments related to rural electrification; (viii) expenses for credit guarantee funds

management; and (ix) compensation for ESE acquisition of off-grid installations once connected to the

national grid.


5.7 Rural Electrification Finance Corporation

5.7.1 To enable debt financing of off-grid electrification projects by local communities and the private sector,

the new Rural Electrification Law should be set up a government corporation to finance rural

electrification projects at concessionary rates. Again, the corporation would be supervised by the

Committee assisted by the Executive Secretariat.

5.7.2 National funds and international funding would be provided to this corporation. This new financing

institution would extend financing to projects based upon criteria established by the Committee given

lead responsibility for electrification and the Executive Secretariat.

5.8 Investment Promotional Privileges

5.8.1 Consideration should be given to having the new Rural Electrification Law give the Myanmar Investment

Commission (MIC) the authority to grant SPPs promotional privileges beyond those currently able to be

granted by the MIC. Such additional privileges would only be granted upon petition to the MIC by the

DRD for off-grid SPPs and MOEP for on-grid SPPs. Such petitions would need to certify that the

particular SPP would significantly benefit the country and that granting the additional promotional

privileges is required for the project to be economically viable.


Chapter 6

Conclusions- Looking Forward

Noting the many successes of the Project, the work required to establish an effective regulatory regime

for the Myanmar power sector is far from being completed. The following are the recommendations of

the DFDL Consulting Team as to the next steps that need to be taken.

6.1 Additional Regulations

6.1.1 The six regulations prepared on a prioritized basis were selected from seventeen regulations that were

identified in late January 2015 as required for the regulatory structure to become fully operational.

Eleven of the seventeen regulations previously identified as required remain yet to be prepared.

Drafting of these remaining regulations needs to be prioritized and, once prioritized, drafting should be

initiated. In terms of priorities, higher priority should be assigned to the regulations on, (i) performance

standards; (ii) compensation for damages; (iii) finalization of the Grid and Distribution Codes; and (iv)

the Consumers Manual. However, addressing the outstanding matters regarding the draft competitive

tenders and solicitations regulations should be given top priority, and the draft of this regulation should

be finalized first.

6.2 Internal Regulatory Organization, Process and Procedures

6.2.1 The MOEP successor needs to establish its internal organization, process and procedures by which the

MOEP will perform regulatory tasks of quality and on a timely basis. The deferral of the review by the

DG and the Steering Committee of the draft regulations on internal MOEP organization and procedures

prepared by the DFDL Consulting Team does not eliminate the need for such internal MOEP regulatory

organization, process and procedures.

6.2.2 The basics of the internal organization, process and procedures of MOEP should be in place before

MOEP successor commences performance of its regulatory responsibilities. To do otherwise is likely to

result in incorrect or incomplete regulatory filings being made, and the MOEP successor processing

such filings on an ad-hoc basis; thus resulting in confusion, delayed decision-making and a lack of quality

control over regulatory decisions. A consultant or advisor should be made available to assist the MOEP

in this endeavor. Ideally, the resident advisor that is recommended immediately below should be able

to provide such assistance.

6.3 Human Capacity Building

6.3.1 Successful regulation requires knowledgeable and experienced management and professional staff.

Given the current lack of regulatory knowledge and experience within the MOEP, learning and training

will initially be primarily achieved on the job, which, although practical, may result in its own set of

challenges. However, investing in education and training can accelerate the learning curve and help to

avoid repeating costly mistakes. It is often much more cost effective to bring trainers on location.

Ideally, the internal regulatory consultant recommended above would also be able to give

presentations and workshops on a regular basis on regulatory topics relevant to the responsibilities and

operations of the MOEP.


6.4 Rural Electrification Law

6.4.1 To further enhance the legal structure surrounding rural electrification, the next step to be taken is to

establish a Steering Committee charged with producing a consensus-driven draft of a Rural

Electrification Law. The Chairman of the Steering Committee should be someone from the executive

management of the MLFRD or another Ministry with responsibilities regarding rural electrification.

Unless there is a complete change in the position of MOEP successor towards rural electrification, a

representative of the MOEP successor should not chair this Steering Committee.

6.4.2 It is recommended that the Steering Committee should first focus on trying to forge a consensus on the

desired content for the new Rural Electrification Law. In this regard, the report on rural electrification

and the draft for the new Rural Electrification Law prepared by the DFDL Consulting Team, together

with any other drafts for an electrification law that may have also been prepared, should be distributed

to the Steering Committee for purposes of fostering a meaningful dialogue among the members of the

Steering Committee. After determining the content of the new law, the Steering Committee will be

responsible for drafting the new law.

6.4.3 The probability of timely success of this effort would be significantly improved if the Steering

Committee obtained access to an outside consultant who can help manage discussion among the

Steering Committee, give advice regarding relevant international experiences, and assist in the drafting

of the new law.

6.4.4 It is also important to note that not all of the reforms recommended in the report prepared by the DFDL

Consulting Team as appropriate content for the new electrification law in fact need the enactment of

legislation to be implemented. For example, delegations by distribution companies (ESE and YESC) of

responsibility for the operations of the distribution networks and retail power sales at the township

level being delegated to privately owned companies, without any legislative endorsement of this new

practice.

6.4.5 The DFDL Consulting Team has concluded that new legislation is not required for an Small Power

Program commonly referred to as an SPP Program to be established as recommended in Chapter 5

above. There is no impediment to the MOEP successor immediately initiating preparation and

implementation of such an SPP Program. Again, the probability of timely success of this effort would

also be significantly improved by providing an international regulatory expert who can assist in the

design and the drafting of the regulations implementing the SPP Program. Ideally again, the internal

consultant that is recommended above to be made available to the MOEP regarding regulation would

also have experience in SPP Programs, and could also assist regarding the implementation of the SPP

Program.