Myanmar is in dire need of financing solutions to build its electricity grid and power its economic growth. “Green bonds” might well be the answer.
A lack of a reliable electricity supply presents a critical barrier to Myanmar’s chances of achieving transformational economic growth. Cited as such by foreign and domestic investors, as well as by ordinary people in their aspirations for a better life, closing Myanmar’s growing electricity deficit ranks among the highest priorities of the new National League for Democracy (NLD) government that will take office on the 1st of April.
Naturally, there are many obstacles to providing the quantity and quality of electricity Myanmar needs. The resistance of vested interests, administrative inertia, antiquated infrastructure, institutional arrangements that are not fit for purpose, Myanmar’s challenging geography and climate, and the simple poverty of the customer base, all factor in stalling change. Sitting at the top of the list of obstacles is finance. According to the best estimates of industry insiders, as well as the World Bank and Asian Development Bank, Myanmar will need annual investments of between US$2-3 billion per year across the next decade and a half if it is to make up for past under-investment and neglect. Renewable energy, but especially solar, offers enormous possibilities, but like all other means of electricity generation, requires capital outlays that vastly exceed the Myanmar government’s budgetary capacity, and even the funds available from the multilateral lenders and other development partners.
One possible solution to the funding side of Myanmar’s electricity problem, and available ultimately to both public and private sector entities alike (but with the public sector likely needing to lead initially), is to create Myanmar-issued “Green Bonds”. Financial instruments that tap into pools of funds (domestically, internationally, multilateral and donor), Green Bonds apply finance to electricity generation exclusively in sustainable forms, and thus deliver climate outcomes as well as economic. Of course, Myanmar has yet to see the day when fossil fuels will cease to factor in electricity generation, but that the future is in renewables is in no doubt.
Myanmar’s bond market (and capital markets broadly) are nascent, relatively illiquid, and thin. Yet, in recent years critical foundations have been laid for their evolution into a source of long-term public finance. Multiple-year Treasury Bonds and short-term Treasury Bills are already regularly issued, at close to market-clearing yields. Before the arrival of Covid-19, the sale of these instruments more or less covered Myanmar’s budget deficit. Introducing Green Bonds into this market brings with it the promise not just of diversifying and lowering the cost of capital for Myanmar in pursuing sustainable energy, but also in “crowding in” possible private sector issuers in the near future.
But how to create and sell genuine Myanmar-issued Green Bonds? The field of sustainable energy financing is unusually populated by charlatans, drifters, and would-be world saviours, cohorts united only by trading on the gullibility of investors, public and private. Proof of this, alas, are the countless number of supposed green-funding vehicles whose products have, as their only true asset, the ingenuity with which they stretch what is meant by “sustainability”.
The field of sustainable energy financing is unusually populated by charlatans, drifters, and would-be world saviours, cohorts united only by trading on the gullibility of investors, public and private.
Luckily for Myanmar, assistance is available in creating Green Bonds via the application of ASEAN’s Green Bond Standards, originally issued in 2017 by the ASEAN Capital Markets Forum (ACMF), but revised and extended in 2018. Based in turn on the International Capital Market Association’s Green Bond Principles, ASEAN’s Standards seek to sieve out the genuine from the predatory, and to set out the criteria that financial securities have to meet before they can be labelled as truly Green Bonds. Though there are many qualifying details, ASEAN’s Standards (all of which can be readily applied by and in Myanmar) boil down to:
- Use and management of proceeds: All proceeds of Green Bond issues must be used for environmental ends. For practical purposes, and of relevance for Myanmar’s power generation needs, such ends include renewable energy, enhanced energy efficiency as well as pollution prevention and control.
- Processes for project evaluation and selection: These must be clearly communicated, and subject to external review.
- Reporting: At a minimum, this should be done annually, and with a description of any environmental impacts. Once more, a validating external review is recommended.
In addition, for ASEAN Green Bonds specifically, the ACMF requires:
- Issuer and issuance: Must be an ASEAN issuer or, if not an ASEAN issuer, the eligible Green Project must be located within an ASEAN country.
- Use of proceeds: Fossil fuel projects are specifically excluded.
Myanmar’s need to generate dramatically elevated levels of electricity is clear and present. In renewable energy is the long-term answer to the supply of such electricity, and in ASEAN-compliant Green Bonds is at least part of the answer to paying for it.
Sean Turnell was a Visiting Senior Fellow at the ISEAS - Yusof Ishak Institute.