S

Building a proper level of Legal Framework for private participation

in power sector

Zhang Ling Law School of Yunnan University of Finance & Economics

zl55cn@hotmail.com 2015 WLE Greater Mekong Forum on Water, Food, &Energy,

Phnom Penh, 21-23October

Myanmar Land area: 677 thou sq km Population: 54.8 M GDP per capita: US$255

Thailand Land area: 513 thou sq km Population: 65.3 M GDP per capita: US$2,727

People’s Republic of China Land area: 633 thou sq km Population: 93.8 M GDP per capita: US$1,032 （figures for Yunnan and Guangxi only）

Viet Nam Land area: 332 thou sq km Population: 83.1 M GDP per capita: US$622

Cambodia Land area: 181 thou sq km Population: 13.8 M GDP per capita: US$393

Nature resources and future development plan

Resource Reserve Hydropower >100 GW (estimate)

Wind 365 Twh/year

Solar 52,000 Twh/year

Coal 540 million tons (estimate)

Crude Oil 145 MMbbl (proven)

Natural Gas 16.6 TCF (proven)

Capacity Number of potential sites

Potential capacity (MW)

Less than 10 MW

210 231.25

Between 10

MW and 50

MW

32 806.30

More than 50

MW

60 45293.00

Total 302 46330.55

Source: Ministry of Electric Power

Investment booms

S  Resource-rich

S  Export oriented policy

S  Geo-political issue

S  Backed by China going-out policy to support OFDI

Legal framework

S  Combination of laws from different period of time and many of them are either outdated or untested.

S  The Electricity Law 1984

S  Foreign Investment Law 1988 updated

S  Myanmar State-owned Economics Enterprises Law 1989

Development models

(1) Sole investment of Ministry

(2) B.O.T by local entrepreneur

(3) JV/B.O.T by foreign investor 5%

94%

1%

Percentage of power supply

MOEP JV/BOT BOT

Share structure of the JV company

Share structure

JV company

MOEP

Foreign investor

Local participation

Royalty/quasi royalty

Royalty to be paid by the

concessionaire

Free power

Free share

Concession Right Awarding Process

Project proposal to

MOEP

Signing of MOU

Signing of MOA

Signing of JVA Proposal to

MIC Project

implementation

FSR and Evaluation

ESIA/CSR approval

Legal opinion, concession right, JV company certificate

Structure of JVA

S  Term of agreement

S  Development plan including the budget

S  Concession rights

S  Compensation payable by the JV company

S  Establishment of the JV company

S  Capital structure

S  Project costs

S  Share transfer

S  Management and administration of the JV company

S  Taxes

S  Responsibilities of the Parties

S  Settlement of dispute

S  Waiver of the sovereign immunity

S  Termination

S  Most of the power generated are to be sold to Chinese potential power purchaser.

Unsuccessful example

S  The hydropower Projects in the Upstream Ayeyawady River Basin are located in Kachin state in northern Myanmar, including 7 cascade projects.

S  The total installed capacity is about 20,000MW and the annual energy output is about 100 billion kWh.

Impacts

S  Bilateral relationship affected

S  Further Chinese investment stagnate

S  Power development plan may not be achieved

S  Chinese existed interests may be on the edge.

Issues identified

S  Lack of comprehensive BOT legal framework to attract foreign investment S  No BOT laws or legislations

S  Contractual framework problematic

S  No clear Environmental and social standards

S  Ongoing uncertainties in new Foreign Investment Law

No BOT laws or legislations

S  Selection of concessionaire

S  Private initiated to public biding

S  structure of the concession agreement

S  JVA to more clear and detailed BOT contract to include Rights and obligations of the contracting parties, guarantees of performance to be provided, remedies available in the event of default of either party, during of concession period

S  Security interests

S  Assignment of the concession contract or transfer of controlling interests in the concessionaire

S  Early termination

S  Settlement of dispute

Contractual framework problematic

S  No standardized BOT contract, for implementation of any BOT project, the parties involved must negotiated the contract on an ad hoc bilateral basis. JVA is in it’s nature a contract for the incorporation of the JV company, not a BOT contract.

S  It is the requirement of the Myanmar government that 100% of the electricity generated by power plant in the future must be sold domestically. S  No model PPA

S  No standardized take-or-pay commitment

S  No lengthy track-record of offtake payments

S  No sovereign guarantee against the tariff payment

No clear Environmental and social standards

S  Although the Environmental Conservation Law was passed in 2012, requiring EIA and SIA for every company doing business in Myanmar. S  No detailed standards to be used as a measure of assessment,

S  No process for consultation and approval

S  SIA standards and assessments has not started to prepare yet.

Ongoing uncertainties in the new FIL

S  Changing of the law issue

S  Only provide that the government will not, without a proper reason, terminate an an enterprise operating under MIC permit.

S  Dispute settlement: dispute resolution mechanisms can be mutually agreed. Myanmar is not party to Washington convention.

Lessons learned

For China

S  Rushed into this market at early stages while the investment condition is far beyond maturity.

S  Considerations were focused only on the technique and financing criteria, less attention has been paid to the legal, political, environmental and social risks.

S  In stead of helping Myanmar to establish a comprehensive legal and regulatory framework to suit for all types of project, we only concentrated on the promotion of specific project

Lessons learned

S  Only strengthen the importance of the compliance with the local laws and regulations, sometimes take advantages of the defects or imperfections of the existing legal framework.

S  Highly rely on the diplomatic means to solve economic disputes. Political solution is not always preferable and workable, need to learn how to explore every legal avenue to achieve a just and proper result.

Lessons learned

For Myanmar

S  Needs to develop a comprehensive legal framework to attract foreign investor, provide stable environment.

S  Needs to define a clear vision and transparent legal framework for private participation in the infrastructure project, that investors can trust.

S  Efficient dispute resolution will be useful for the foreign investors to build their confidence in this new market.

Lessens learned

S  Environmental and social standard must be clear and address the balance between environment protection, human right protection and the economic and social development

S  Invite bilateral and multilateral financing agencies and institutions to rebuild its framework for power sector as currently has been done, but the broad interest of China must be considered and consulted.

S

THANK YOU

YOUR COMMENTS ARE HIGHLY APPRECIATED