Chronic power shortages hampering economic development in Myanmar

Short circuits inThe fledgling nation's desire for rapid growth is hampered by chronic power shortages, as revealed in the second of a three-part series

PUBLISHED : Friday, 05 April, 2013, 12:00am
UPDATED : Monday, 29 August, 2016, 10:43am

Five years after the devastation of Cyclone Nargis, the Hlaing Thar Yar Industrial Zone on the outskirts of Yangon in Myanmar is showing signs of a boom, with new factories sprouting every month behind its fences.

To many visitors, the park - the second largest in the country, occupying 567 hectares and employing more than 58,000 people - is the epitome of a new Myanmar and the nation's potential for rapid growth. But talk to local industrialists, however, and the conversation inevitably moves to bitter complaints about chronic power shortages.

The electricity supply, not the natural disaster that hit the park and much of the country in 2008, seems to pose the biggest challenge to a dream of prosperity.

"The biggest headache for manufacturers is the lack of electricity," says Kyaw Zin Htet, marketing manager for footwear maker Reva. "We have to rely on our own diesel generator [for power] every day from 12pm to 3pm, Monday to Saturday."

John Lee, the deputy secretary general of the Chinese Enterprises Chamber in Myanmar, says the cost to companies of generating their own electricity could be five to 10 times that of taking power from the grid.

"The price of electricity is protected by the government but the price of diesel is subject to the international price," Lee says. The chamber, representing investors from China, has over 100 members, mostly in the mining, energy, clothing, medicine, food processing and light industries. The number could be higher but some potential investors are put off by the power problems.

Since 70 per cent of Myanmar's electricity supply comes from hydropower, the shortages are particularly bad during the dry season from October to May. Officials at the Hlaing Thar Yar park say they can ensure power supplies only for five hours a day, even though the country's labour laws allow employees to work for 7.3 hours per day. This undercuts Myanmar's competitiveness, despite the availability of cheap labour.

However, those in Hlaing Thar Yar can count themselves lucky. Sixty per cent of power in Myanmar is consumed in the Yangon area. Most people living in other parts of Myanmar are simply cut off from electricity - and effectively from modernity as a result.

"Three out of every four Burmese don't have access to power," says Anita George, the infrastructure director for Asia at the International Finance Corporation (IFC) - a member of the World Bank Group focused on the private sector in emerging markets. "Addressing the power shortage is one of the top priorities of Myanmar's government and the country's development."

For a country more than 600 times the size of Hong Kong, with a population of 60 million, the installed power capacity in Myanmar is a meagre 3,300 megawatts, according to World Bank data. By comparison, CLP Holdings in Hong Kong has an installed capacity of 6,900 megawatts alone.

To connect all of Myanmar, George says, would require a power generation capacity of at least 10,000 megawatts. "But as the country is expected to grow very fast, the actual needed capacity will be much higher," she says. "That is just in terms of power generation. On top of that, you also need transmission and distribution networks to connect people to the power grid."

That itself can be a daunting task. The power transmission loss in Myanmar, according to George, is about 25 to 30 per cent - meaning that more than a quarter of the precious electricity generated goes to waste. The level of transmission loss in China and the US is about 7 per cent.

"Plugging this leakiness in the system is very important. Myanmar also needs to build up a good power distribution network to connect the rest of the country to the grid," she said.

Yangon alone needs an estimated US$237 million for infrastructure and expansion work for its power grid in the next three years, according to the Asian Development Bank (ADB).

The World Bank Group and IFC - together with other partners such as the ADB - are working closely with Myanmar's government to solve the problem. Their assistance comes in the form of direct financing as well as providing expert opinion to the government.

George says they have devised long- and short-term plans to tackle the shortage.

"Between the World Bank and IFC, we will provide financing for both the public and private sectors. Through that financing, we hope to help add 300 megawatts [in additional capacity] this year. In addition, there are other development banks and neighbours ready to help Myanmar. With their support, the country may be able to add a total of 500 megawatts in the coming months."

Ironically, the country is blessed with rich resources and plenty of natural energy to tap. George estimated the country has 11.8 trillion cubic feet of natural gas available and a 100,000-megawatt hydropower capacity waiting to be fully exploited.

The biggest obstacle to developing Myanmar's power sector is the lack of regulation and clearly defined rules, which puts off many private investors.

"The shortage problem cannot be solved in the short term because the price of electricity is too low to attract private investors," Lee said. He says the lack of clear government policy also increases uncertainties and risks for foreign investors.

Growing environmental awareness and civil rights movements in the country also add a new dimension to the debate. In 2011, Myanmese President Thein Sein suspended the construction of the Myitsone Dam - a US$3.6 billion hydropower dam to be built by Chinese state-owned China Power Investment Corp.

The decision was hailed as a major step forward by environmentalists and rights activists. The Chinese project would have a big impact on the local ecosystem and displace tens of thousands of people. Most of the electricity generated would be supplied to Yunnan province in China, instead of to Myanmar.

"The impact of the suspension of the Myitsone Dam is far- reaching," Lee said, "Since then the construction of 30-odd other hydro dam projects has been either put on hold or delayed because the banks are hesitant to fund those projects."

To ensure Myanmar can meet its growing demand for electricity and protect its rich but fragile ecosystem, the country urgently needs an electricity law to clearly define the roles and responsibilities of different parties.

"The electricity law will define how electricity companies in Myanmar will function. It will provide the necessary regulations and framework in terms of how the electricity will be supplied and who will be responsible for what," George says. "In addition to that, it will define what role the private sector will play. This law is crucial for Myanmar's power development."

The World Bank Group is now advising Myanmar's government on the electricity law - which is still in draft form and needs parliamentary approval.

"The Myanmar government is eager to get this done, targeting to have the law passed in 2013. We think this may take a bit longer - say between six to 12 months," she said.

Critical as the power shortage problem is, most people are optimistic that the country is on the right path to address the issue.

"Compared with two years ago, the electricity supply in the country has already improved in a significant way," Lee says. At that time, he says, electricity was available only for one to two days per week in the industrial areas and five hours a day for residential areas.

"Now factories [in the Yangon area] can get five hours' electricity a day, and it's almost 24 hours for the residential areas," he says.

In part three, on Monday, we look at how Myanmar is rebuilding its crumbling infrastructure