|Project Rationale and Linkage to Country/Regional Strategy
Myanmar's energy policy framework centers on (i) maintaining energy independence, (ii) promoting wider use of new and renewable energy sources, (iii) promoting energy efficiency and conservation, and (iv) promoting the use of alternative fuels in households. Seven ministries are responsible for energy matters. The two main energy-related line ministries are the Ministry of Energy (overall energy policy and the oil and gas sector) and the MOEP (hydropower, coal-fired power generation, gas-fired power generation, mini-hydro, and power transmission and distribution). The government established the National Energy Management Committee and the Energy Development Committee in January 2013 to strengthen coordination among the seven ministries with a view to improving resource planning for and oversight of investment in energy sector development.
The power sector in Myanmar is governed by the Electricity Act 1948 (as amended in 1967), the Myanmar Electricity Law (1984), and the Electricity Rules (1985). This legislation needs revision to reflect current international best practices in power sector governance. There is also a pressing need to develop grid codes and model power purchase agreements for small and large power generation projects. These rules and draft models do not exist in Myanmar and will have to be based on current international best practices with appropriate guidelines and requirements to allow private independent power producers to connect with the Myanmar national grid.
The power sector in Myanmar is currently under the responsibility of MOEP, which, as well as being responsible for power sector policy, includes (i) development, implementation, and operation and maintenance (O&M) of all large hydropower plants and coal-fired thermal power plants; (ii) construction and O&M of transmission and distribution systems throughout the country; (iii) O&M of gas-fired thermal power generation plants; and (iv) planning, implementation, and O&M of mini-hydropower plants.
The MOEP is responsible for policy and oversight as well as regulation of the power sector; and is vested with all planning, operating, and management responsibilities for the sector. In the absence of a distinct regulatory framework to support the functional unbundling that will need to take place soon, the MOEP will need clear directions on how this could be achieved through a revised electricity law. The MOEP has a draft concept note on power sector policy that outlines a reform strategy to (i) rationalize power sector institutions and functions, (ii) gradually commercialize the institutions, (iii) develop a regulatory framework through an electricity law, (iv) gradually adopt cost-based tariffs, (v) promote private sector participation, (vi) increase rural access to electricity, (vii) undertake demand-side management, and (viii) update the law and regulations on health and safety and sector-related offences. Policy has tended to be developed through the process of drafting the new law, rather than through wide consultation with concerned ministries and stakeholders whose inputs are then captured in law.
The government recognizes that foreign direct investment will be required to achieve projected investments in the power sector. A framework to attract build operate transfer investments will need to be adopted. Notable features of such a framework include guaranteeing the convertibility of local currency into foreign currency, permitting the mortgaging of project assets, specifying tax levels, and allowing risk sharing by the government and private investors. However, various shortcomings continue to impede rapid development of build-operate transfer projects in the power sector, principally the (i) lack of a comprehensive and transparent regulatory framework, (ii) need to modernize the legal and financial system and legislation, (iii) lack of a modern law governing private sector investment, and (iv) lack of experience in and capability to facilitate long-term foreign investment in infrastructure. The government recognizes the importance of these issues and is taking the first steps to strengthen power sector legislation by introducing an updated electricity law.
A draft electricity law has been prepared by a working committee under the supervision of the Minister of the MOEP to provide a broad framework for the development and regulation of the power sector. This committee is composed exclusively of MOEP staff. At the MOEP's request, ADB provided assistance to engage a short-term legal expert to assist the MOEP in developing the draft. The draft has been submitted to the Office of the Attorney General for comments. This will be followed by interministerial consultations, after which the draft will be approved by the cabinet and submitted to Parliament. The current draft law is quite general. It identifies the institutions and reforms that will be required, and outlines principles and concepts for allocating tasks among agencies. It creates a framework for licensing and contracting for new projects, and establishes an electricity regulatory authority (ERA) to regulate tariffs and investment programs and oversee the introduction of technical codes and standards. Initially, the ERA will be a division or department within the MOEP.
The electricity law is expected to serve as the foundation for the regulatory framework. At the same time, its usefulness will be limited until it is operationalized by drawing up supporting secondary legislation and setting up the ERA as envisaged under the law. The ERA is expected to play a central role in the strategic development of the power sector (least-cost system expansion; investment planning and financing; fuel and electricity pricing; retailing of electricity in rural areas; and cross subsidization among others) and overseeing implementation of the strategy with its regulatory powers. The government sought ADB's assistance in drafting and operationalizing the proposed electricity law, including initial capacity building on the principles of electricity regulation.
To increase the rural electrification ratio and the supply of electricity to rural areas, the MOEP also requested ADB's assistance in preparing a new rural electrification law and implementing regulations to streamline the role and function of the ministries, including the state government, and to prioritize the necessary investment and government budget allocation.