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US ups ante in Burma’s economic future

The Myanmar Oil and Gas Enterprise (MOGE) has become the elephant in the room amid debate over whether investment in the oil and gas entity, which has close links to Burma’s former military junta, should be permitted under the US government’s new investment framework.

On Thursday, the US government fired the starting gun for American investors to get down to business in Burma, announcing two general licences permitting new investment in almost all of the country’s sectors, including engagement with MOGE, and the export of financial services.

American extractive industry heavyweights Chevron and Shell are racing to capitalize on the moment, with other big names expected to converge on Burma’s lucrative oil and gas sector, according to Burmese media.  Representatives from Chevron are due to visit Rangoon over the weekend.

Under the new rules, US firms must adhere to strict reporting guidelines to encourage greater responsibility and transparency and those entering into investment agreements with MOGE must notify the State Department within 60 days.

While economists and Burma experts have cautiously welcomed the US’s move to further engage the impoverished Southeast Asian nation as a sign of support for President Thein Sein’s reform process, human rights groups have condemned the announcements.

In particular, the US government has ignored Burma’s opposition leader Aung San Suu Kyi’s concerns by allowing US companies to do business with MOGE, rights group said.

“The US looks like it caved to industry pressure and undercut Aung San Suu Kyi and others in Burma who are promoting government accountability,” said Human Rights Watch business and human rights director Arvind Ganesan in a statement published on Wednesday.

“Business entities in many sectors of the economy, like oil and natural gas, are responsible for decades of human rights abuses,” said United to End Genocide President Tom Andrews.

“By lifting the investment ban the U.S. government is encouraging American companies to get into bed with some of the worst human rights offenders and risk becoming complicit themselves.”

Aung San Suu Kyi has previously urged foreign governments not to allow their companies to do joint ventures with MOGE until it improved transparency and accountability.

“The Myanmar Oil and Gas Enterprise… with which all foreign participation in the energy sector takes place through joint venture arrangements, lacks both transparency and accountability at present,” Aung San Suu Kyi said at a conference in Geneva last month.

When contacted by AFP on Wednesday Aung San Suu Kyi was reported as saying she welcomed the US government’s decision to ease sanctions on Burma but continued to urge for greater transparency.

“We’ve essentially moved from broad to targeted sanctions,” officials from the US embassy in Rangoon said on Thursday, adding the move is a positive demonstration of support for President Thein Sein’s government and will encourage continued progress along the road to democracy.

Economic engagement with US companies would encourage the government’s reform progress and benefit the greater population in Burma, they said, adding the new reporting requirements for US companies will bring the country’s notoriously murky business practices into the spotlight and encourage greater responsibility and transparency.

However some American senators have questioned their government’s decision to allow investment with MOGE warning that doing business with the state oil and gas giant, also the vehicle through which billions of dollars in foreign investment revenue was used to fund the former military regime, risked upsetting democratic reforms.

“We are concerned, however, that the Obama administration has chosen to permit US firms to do business with MOGE at this time,” US Senators John McCain and Joe Lieberman said in a statement on Thursday.

“Under these conditions, we are concerned that doing business with MOGE runs the risk of setting back Burma’s democratic reforms, rather than reinforcing them, as is our common goal.”

American industry heavyweights have been lobbying for the lifting of investment restrictions and the US is the last of the western nations to ease sanctions against Burma. The EU, Canada and Australia have all eased, suspended or scrapped sanctions against Burma and, alongside Asian competitors, already have access to Burma’s economy although Asia, China and Thailand in particular, dominate the lucrative oil and gas sector.

Economists and Burma watchers have cautiously welcomed the US’s announcement, saying economic engagement is vital to help rebuild the impoverished nation’s economy and the US’s move will be viewed as a positive reinforcement of support for President Thein Sein’s reforms.

“I welcome this announcement because by bringing in US players, which if they behave responsibly, could set an industry benchmark to promote transparency which is lacking in Myanmar,” said Maw Htun, an independent Burmese researcher on foreign investment, during an interview with DVB.

Indeed, the strict reporting guidelines could encourage domestic and international companies to step up their game and ensure responsible investment in Burma said economist and Burma expert, Professor Sean Turnell from Australia’s Macquarie University.

“I am somewhat hopeful they might even provoke a sort of ‘transparency contagion’ with respect to other country investors,” said Turnell of the reporting guidelines.

“It is really hard to see any reasonable argument against such transparency.”

Maw Htun said Burmese people needed socially and environmentally responsible investment and hoped the international community could encourage the Burmese government to swiftly adopt international policies such as the Extractive Industries Transparency Initiative (EITI), the secretariat of which is visiting Burma this month.

“I am somewhat hopeful they might even provoke a sort of ‘transparency contagion’ with respect to other country investors”

“We need to encourage the government to adopt this (EITI) immediately and educate [stakeholders] on human rights issues,” he said, adding human rights groups could be instrumental in supporting new, responsible investment in Burma instead of discouraging engagement.

“It’s easy to stand on your moral ground without realising the intricacies of the situation, especially in a country like Myanmar which has been closed to the outside world for so many years,” he
said.

“Even if the government wants to change and commit themselves to greater transparency, without outside help, they lack the knowledge and capacity to instigate these changes.”

Maw Htun says naming and shaming MOGE won’t deter foreign investment in the entity.

Burma’s lucrative oil and gas sector attracted more than US $3 billion during the past decade, according to research by Macquarie University PhD candidate Jared Bissinger, who is studying Burma’s economy.

While MOGE has been singled out, US investors shouldn’t be deterred from exploring investment prospects with the oil and gas enterprise, said Derek Tonkin, chairman of Network Myanmar and former British Ambassador to Thailand.

“It is not so much MOGE the company … which ‘lacks transparency and accountability’ as its shareholders, which are the Ministry of Energy, or the State,” said Tonkin.

“If, as President Thein Sein told the Financial Times earlier this month, Myanmar signs up soon to the EITI, then MOGE would then be instructed to follow standard EITI guidelines. This issue, in short, should be resolved in the near future and Suu Kyi’s concerns should be allayed,” he said.

Tonkin said the US was taking few risks in their measured, step-by-step response which reflected their attachment to conditionality and to the notion of benchmarks.

Apart from approving new legal framework for investment and financial services, the US government has retained its web of overlapping sanctions upon Burma to give Washington leverage just in case the country backslides on its reforms.

US firms investing more than US$500,000 in new projects will be required to report on their policies and procedures with respect to human rights, worker’s rights, land acquisition as well as report any payments exceeding $10,000 to Burmese government entities, a press release from
the US Treasury Department stated.

While resource-rich Burma’s lucrative oil and gas and other extractive industries will no doubt attract intense interest from foreign investors, genuine new foreign investment also requires sufficient legal and physical infrastructure to support it, said Bissinger.

“Resource investments will be a big portion of the next year’s investment in terms of dollar value,” said Bissinger, touting oil and gas, mining, banking, hotels and tourism as the sectors of most interest to new US firms.

Some notable US companies have voiced interest in Burma with soft drink giant Coca-Cola announcing last month it wanted to work in the Southeast Asian nation, which is one of only three countries – including North Korea and Cuba – where it doesn’t directly operate.

Pepsi Cola is hot on its heels, having recently signed a joint venture with local soft drink company called Diamond Star, who will be its local distributer, according to business sources.

Cans of the soft drink are already available in select Rangoon supermarkets.

The new US Ambassador Derek Mitchell took up his post in Rangoon yesterday, just in time to welcome a delegation of heavyweights representing a cross-section of top US firms including oil and gas giant Chevron, pharmaceutical company Proctor & Gamble, Google, Boeing, Coca Cola and Pepsi that are due to arrive in Rangoon over the weekend, according to US embassy officials.

-Kate Kelly is a pseudonym for a journalist working inside Burma.