Friday, June 20, 2008

Natural Gas Exports and the Missing Money

Burma’s emergence as a major regional supplier of natural gas should proved considerable revenue for any the government to spend on much needed infrastructure, health care and education. Rising gas prices and increasing output volumes have caused Burma’s gas exports to soar in the last few years, dramatically improving the country’s balance of payments and the size of its foreign currency reserves.


Burma’s Gas Exports, Earnings and International Reserves

Year

Gas Export

Volumes

(million cubic metres)

Gas Price

($US per

million Btu)1

Balance of

Payments

($US m)

Reserves

($USm)

2003-04

5,664.4

4.98

541

781

2004-05

9,501.1

7.43

929

873

2005-06

9,138.5

7.31

1,547

1,026

2006-07

13,028.3

8.45

2,226

2,039

2007-08

10,326.8*

9.41

2,355**

3,307**

* ie, April–November 2007. Source: MCSO (2008), IMF (2007, 2008).

** Projection


Burma’s gas exports come courtesy of its possession of large, and exploitable, fields of natural gas offshore in the Gulf of Martaban and in the Bay of Bengal. Cumulatively, these fields have confirmed recoverable reserves of around 540 billion cubic metres – enough, at present prices and production volumes, to bring in annually around $US2 billion for the next 30 to 40 years.2 Two of the fields, the so-called ‘Yadana’ fields off Mouttama, and the ‘Yetagun’ fields off Burma’s Tenasserim (Tanintharyi) Division, came on stream in 1988 and 2000 respectively, and it these that are the overwhelming source of Burma’s current gas deliveries. The primary customer of the output from the Yadana and Yetagun fields is Thailand which, as a consequence, now runs a substantial trade deficit with Burma (of just over $US2 billion in 2006/07).


Over the next few years, however, the export of gas from Yadana and Yetagun will be joined by that from new fields off Burma’s coast in the Bay of Bengal. These fields, the most lucrative of which are collectively known as the ‘Shwe’ (‘gold’) fields, have roughly the same gas reserves present (an estimated 200–240 million cubic metres) as collectively present at Yadana and Yetagun.3 The Shwe fields were explored and developed by a consortium that comprised Myanmar Oil and Gas Enterprise (MOGE), together with South Korea’s Daewoo Corporation, the Korean Gas Corporation, the Gas Authority of India Limited, and India’s Oil and Natural Gas Corporation.


The ultimate customer of the gas actually delivered from Burma’s Shwe fields, however, will be China, which in 2007 ‘won’ a fiercely contested bidding war against India and South Korea. This result provoked consternation in South Korea and India at the time, not least because China’s reported bid was below that of India’s offer.4 China’s Yunnan Province will be the recipient of the gas, courtesy of a 2,400km pipeline that will come ashore near the port of Sittwe (via a facility at nearby Ramree Island), and run more or less the length of Burma into Yunnan Province. With little in the way of labour or environmental considerations to get in the way, construction of the Shwe pipeline can be completed relatively quickly (two to three years). As matters currently stand, however, a delay seems likely in the project, with a senior Yunnan official recently stating with respect to the pipeline that ‘whether, when and how to build it are yet to be decided’ (emphasis added).5 In the light of this, it is now likely that the first Shwe gas (and its revenue) will not flow until at least 2011/12.


Burma’s ‘Missing Billion’

Whatever the latest delays, the gas earnings discussed above should be transforming Burma’s fiscal circumstances – allowing for the spending on basic infrastructure, health and education the country so desperately needs.


However, under current arrangements, the foreign exchange revenues Burma is accumulating via its exports of natural gas are making next to no impact on the country’s fiscal accounts. The reason for this is simple – Burma’s gas earnings are being recorded in its state finances at their ‘official’ (exchange rate) kyat value. This official exchange rate of the kyat (at around 6 kyat:$US1) over-values the currency by around 150–200 times its market value (currently about 1,000 kyat:$US1). This dualism in Burma’s exchange rate imposes other great costs on Burma’s economy, but critical here is that the use of the official exchange rate to convert the country’s gas earnings into kyat dramatically underplays their true (potential) contribution to state finances. Recorded at the official rate, Burma’s gas earnings for 2006/07 of $US1.25 billion translated into 7.5 billion kyat, or a mere 0.6 per cent of budget receipts.6 By dramatic contrast, if the same US dollar earnings were recorded at the market exchange rate (at that time around 1,200 kyat:$US1) their contribution of 1,500 billion kyat would more than double total state receipts, and more or less eliminate the country’s fiscal deficit. That this is not done is yet another revealing episode of the chronic macroeconomic mismanagement that inflicts Burma, as well as the SPDC’s priorities.


So where do Burma’s generals hide the ‘missing’ billion or so kyat they keep away from the state’s official finances? No-one but they know for sure, but the gas revenues do show up in the statistics for Burma’s foreign reserves provided by the Myanmar Central Statistical Organisation (MCSO) to the IMF. An inspection of the vaults of the Myanmar Foreign Trade Bank for the money might be a good place to start however – as also might the accounts of some accommodating if unscrupulous banks offshore. From these refuges the SPDC can (and does) spend as they might whim – on the new capital of Naypyidaw, on the nuclear reactor that is being purchased from Russia, on the extraordinary ‘physic nut’ bio-fuel campaign, and so on. In any case, the generals can rest assure that the money they expropriate is safe from prying eyes, and safe from the peoples for whose lives it might make a difference.


1 Prices are a composite of those applying to the delivery of natural gas to a number of countries and regions. Gas export prices are typically quoted in ‘British Thermal Units’ (Btu’s), a measure that accounts for both volume and energy intensity. Though there are other complications that must be taken into account in particular contexts, one Btu is equivalent to approximately 28 million cubic metres of gas.

2 British Petroleum, BP Statistical Review of World Energy, June 2007- www.bp.com/statisticalreview/

3 Estimates of the size of the Shwe fields vary, but those here refer to confirmed gas reserves according to British Petroleum’s BP Statistical Review of World Energy, op.cit.

4 Anupama Airy, ‘Myanmar Prefers China as Gas Buyer’, Financial Express, May 29, 2007, - wwww.financialexpress.com

5 The official was Bai Enpai, Secretary of the Yunnan Provincial Committee of the Chinese Communist Party. The statement, which was made on March 8, 2008 caused widespread astonishment given the conventional wisdom that the pipeline was a ‘done deal’. Bai Enpai’s comments were reported by China’s Xinhua News Agency, <www.xinhuanet.com/english/>.

6 Calculations derived from data in IMF (2007, p.9).

1 comment:

Awake Catalyst said...

What is the role of currency derugulation, IMF policy demanding oil price hike and such foreign elements behing the worsening economic and human situation in Burma?

Like to see some analysis of that.
http://www.youtube.com/watch?v=l-YVdpQHdqo