Two years ago, and even a year ago in the aftermath of the 1 February 2021 coup, Yangon was not suffering severe blackouts. While there were sporadic electricity cuts for a few hours a day in some of its townships, electricity supply was more stable and predictable than ten or fifteen years earlier. This experience has left city dwellers wondering what accounts for the severe power cuts now.
Myanmar’s commercial capital Yangon and other cities in the country are facing severe power outages. Some quarters of Yangon get on-off power for just four hours a day — and the hot and dry season beckons. With the prolonged electricity cuts come water shortages in downtown areas as households cannot pump water to their storage tanks.
According to state-controlled media, electricity generation has declined by more than one third, due to three reasons: suspension of two LNG-to-power projects with an installed capacity of 750MW due to rising global LNG prices; the explosion by People’s Defense Forces in Kayah State of three power lines supplying 220MW of electricity; and work on pipelines carrying gas from the offshore Shwe Gas Field.
Two years ago, and even a year ago in the aftermath of the 1 February 2021 coup, Yangon was not suffering severe blackouts. While there were sporadic electricity cuts for a few hours a day in some of its townships, electricity supply under the Yangon Electricity Supply Corporation (YESC) was more stable and predictable than ten or fifteen years earlier. This experience has left city dwellers wondering what accounts for the severe power cuts now.
In fact, these cuts should not have been a surprise. Last July, the Independent Economists for Myanmar (IEM) group completed a report on “Myanmar’s Electricity Sector After the Coup”, which predicted power shortages. The report stated that the coup created two crises for electricity generation: a short-term financing gap and a longer-term decline in power supply. The government’s short-term losses due to users’ refusal to pay their bills can amount to trillions of kyat (up to USD 1.5 billion), and in the longer term electricity supply is likely to decline. Projects for gas-fueled power plants rented by the Ministry of Electricity and Energy (MOEE) — mostly on short-term five-year contracts — are affected by land issues and the state’s doubtful ability to honour costly payment contracts.
In addition, over 4,000 MOEE staff were dismissed after the coup for participating in the Civil Disobedience Movement. Their dismissals will have had a huge impact on grid maintenance, and on the state of the electricity sector as a whole.
…many residential users have refused to pay bills as a form of protest. Bill collection rates plummeted to an abysmal 2-3 per cent in Yangon and Mandalay.
Financing is always a big challenge for the sector. It can be considered a legacy issue dating from the Burma Socialist Programme Party government era (1962-1988), which extended subsidies to all public services. The inability to achieve cost recovery and the widening financing gap due to increasing electricity consumption bring risks that make independent power producers (IPPs) reluctant to enter the Myanmar market. In 2017, annual losses from subsidies amounted to US$400 million, according to the law firm VDB Loi. The IEM report also noted that electricity tariff reforms in 2002, 2004 and 2006 were too small and too late. Furthermore, they targeted industrial and commercial users when it was residential demand that was growing faster. Residential consumption accounted for 60 per cent of total power demand in 2018. The report highlighted the fact that the NLD government’s tariff reform in 2019 was, in contrast, quite significant, as the steep increase in tariffs after the first 30 units would generate approximately 800 billion kyat (USD 480 million) annually, an increase in revenue of 75 per cent.
Although tariffs reform in 2019 generated increased revenue for the MOEE, electricity revenue was declining by US$27 to 33 million per month. Covid-19 hit the country in March 2020 and users were exempted from tariffs for up to 150 kwh, amounting to subsidies totaling almost 100 billion kyat, even before the coup. The coup only compounded this problem, as many residential users have refused to pay bills as a form of protest. Bill collection rates plummeted to an abysmal 2-3 per cent in Yangon and Mandalay.
The State Administration Council (SAC) is putting pressure on residential users to pay their bills and disconnecting electricity to those households that refuse. Revenues might be increasing, as most households cannot live without electricity, but what is certain is that losses from power generation are now much greater than before the coup. In addition, structural issues have become more entrenched than ever before.
In 2016, it was estimated that, to achieve universal electrification by 2030 Myanmar needed US$30 billion in investment in the power sector — an annual average of US$2 billion. Further, the electrification rate would need to increase to 500,000 connections annually under the National Electrification Plan. As of 2015, IPPs accounted for only 10 per cent of the country’s total installed electricity-generation capacity. Most of the loans and grants for the electric-power sector came from international donors — mainly the World Bank, the Asian Development Bank and the Japan International Cooperation Agency. By 2020, private participation in the electricity sector had increased dramatically, with over 2000 MW installed generation capacity now privately owned, according to the MOEE.
Under current circumstances, the chances of achieving the Plan’s target are very dim. Myanmar’s reliance on IPPs for power generation is compounded by heavy post-coup IPP casualties, most consequentially the suspended joint venture between the China National Technical Import and Export Corporation (CNTIC) and Hong Kong-based V-Power that was operating two large LNG-to-power projects.
Before the February 2021 coup, despite the IMF’s warnings on IPPs’ contingent liabilities, the NLD government could seek assistance from multilateral donors in a better macroeconomic environment. Over the past decade, international development assistance provided more than US$2 billion for the electricity sector, and more assistance was on the way. Now, however, the SAC lacks adequate revenue and foreign currency reserves to fulfill existing power purchase agreements and to complete planned LNG-to-power projects. The French power group EDF’s recent suspension of the Shwe Li-3 hydropower project is a clear sign that there are fewer chances of IPPs coming to fruition. Myanmar faces a dark future in the foreseeable months and years.
Khine Win is Executive Director of the Sandhi Governance Institute, Myanmar.