Energy / Energy sector development and institutional reform

The Republic of the Union of Myanmar (Myanmar) is emerging from decades of isolation by instituting major economic, social and political transformation. The country has rich natural resources hydropower (100,000 megawatt); oil (3.2 billion barrels); natural gas (22 trillion cubic feet); and coal (2 billion tons). With abundant natural resources, a long coastline of around 2,800 kilometer, which provides access to sea routes that would facilitate regional trade, it has the potential to serve as a land bridge between PRC, South Asia and Southeast Asia.

Despite abundant energy resources and recent efforts by the Government to develop energy resources, Myanmar has one of the lowest levels of energy consumption in Southeast Asia due to its low per capita income and insufficient energy infrastructure. The electrification rate is low at 26% and system losses are high at 27%. There are persistent power supply shortages in Yangon and Mandalay, and existing power generation, transmission, and distribution, and gas pipeline networks are inefficient and poorly maintained. Core sector issues include (i) difficulty in generation and transmission planning and operation and maintenance due to the absence of electric performance standards and unified power grid code; (ii) fragmented institutional structure, resulting in lack of coordination and planning (eg. There are no long-term supply and demand projections); and (iii) outmoded and inefficient legal safeguard requirements.

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). Prior to 7 September 2012, the power sector in Myanmar was under the responsibility of the Ministry of Electric Power No 1 (MOEP1) and the Ministry of Electric Power No 2 (MOEP2). MOEP1 was responsible for developing, implementing, operating and maintaining all large hydropower and coal-fired thermal power plants. MOEP2 was responsible for (i) developing, operating and maintaining the transmission network and distribution systems throughout the country, (ii) operating and maintaining gas-fired thermal power generation, and (iii) planning, constructing and operating mini-hydropower plants.

MOEP1 consisted of three departments: Department of Hydropower Planning (DHPP), Department of Hydropower Implementation (DHPI) and Hydropower Generation Enterprise (HPGE). DHPP planned hydropower projects to be implemented. DHPI had four institutes responsible for design, investigation works and mechanical works; and seven engineering construction companies capable of construction and installation of large hydropower projects. HPGE operated and maintained all MOEP1's hydropower stations, and participated in the operation and maintenance of power plants under joint ventures. It also operated a coal-fired power plant.

MOEP2 had four department level organizations: the Department of Electric Power (DEP), Myanmar Electric Power Enterprise (MEPE), Yangon Electric Supply Board (YESB), and Electric Supply Enterprise (ESE). DEP's main function was power system strategic planning. MEPE was responsible for the development and implementation of transmission networks and the operation and maintenance of gas-fired power plants. Two distribution enterprises operated the distribution systems. YESB was responsible for the supply of electricity to consumers in Yangon City. ESE covered the rest of the country comprising 27 states and divisions, including off-gird generation and distribution. It was also responsible for planning and implementing and operating off-grid mini hydropower and diesel stations. YESB and ESE also implemented the improvement and expansion of the distribution system.

As of 7 September 2012, MOEP1 and MOEP2 were merged into a single Electric Power Ministry (EPM).

A mission to Myanmar was fielded in August 2012 to meet with YESB in order to obtain a better understanding of the financial management capabilities of the energy sector's key agencies.

The mission confirmed that YESB prepares its financial statements in accordance with Myanmar accounting standards, which are audited by the Office of the Auditor General of Myanmar. Some portion of YESB's accounting systems is computerized. The rest of the system relies on manual bookkeeping. YESB does not prepare any annual financial projections (balance sheet, income statement, statement of cash flows). It prepares a 5-year plan covering capital expenditure, demand growth, cost of sales and equipment forecast for submission to MOEP2 for consolidation. YESB prepares an operating budget which forecasts financials for the present fiscal year. Head office consolidates information from its four districts to arrive at an operating budget.

YESB and the rest of the energy sector's agencies utilize an outdated accounting system. The institution's existing accounting systems are based on the Electricity Supply Board Accounting Memorandum, which was prepared and approved by the Government via the Auditor General's letter No. Ac. A 7-10/160 dated October 1951. The Memorandum was designed to regulate the entire energy sector's accounting activities. It contains specific procedures to be followed for accounting of transactions, chart of accounts, and forms to be utilized by the energy sector agencies. The manual has not been updated for the past 60 years.

An organization's financial management is critical to the success of any business. With the significant role played by the energy sector in Myanmar's economic development and the expected growth in Myanmar's energy sector, it is important that the energy sector agencies have a sound financial management system in place in order to enable them to make informed decisions on the use of their financial resources. As ADB and other donor institutions are beginning to provide financing and/or aid to the energy sector, there is a clear need for the sector's financial management system to be upgraded over time to meet international standards.

A small-scale capacity development technical assistance (S-CDTA) is proposed to review, identify gaps and recommend improvements to the overall financial management system of the key agencies (YESB, MEPE, ESE, and MOEP2) in the energy sector that ADB will be involved with in the coming years.

1. Diagnostic study on the financial management capabilities of energy sector agencies

2. Priority capacity building interventions scoped and initiated

3. Cost estimates of capacity building interventions