BURMA'S ENERGY SECTOR: WHISTLING IN THE DARK

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001057

SIPDIS

STATE FOR EAP/BCLTV, EB/ENR
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
USPACOM FOR FPA

E.O. 12958: DECL: 08/17/2014
TAGS: ENRG ECON PGOV BM
SUBJECT: BURMA'S ENERGY SECTOR: WHISTLING IN THE DARK

REF: A. RANGOON 1014 AND PREVIOUS


B. RANGOON 802

C. RANGOON 191 AND PREVIOUS

Classified By: CDA a.i. Ron McMullen for Reasons 1.4 (B,D)


1. (C) Summary: With the worst of Rangoon's dry season
blackouts easing during the current monsoon rains, many are
pondering whether the GOB will fix Burma's chronic energy
problems before next spring. Signs most definitely point to
'No.' Burma's energy situation continues to suffer from three
major problems: lack of access to natural gas, poor
maintenance of existing infrastructure, and a single-minded
obsession with vast hydropower projects whose finish dates
are regularly missed. We see very little to indicate the GOB
intends to expand efforts to fix any of these. End summary.

Don't Want Gas


2. (SBU) Though Burma has abundant offshore, and some
onshore, natural gas deposits the GOB has stubbornly refused
to use these resources to feed domestic demand. During
2003-04's annual dry season (November-May) electricity
crisis, the GOB did not change this position. Instead, talk
in policymaking circles remained focused on construction of a
liquefied natural gas plant on the western coast to export
all that might emerge from a prospective offshore development
of gas near the Rakhine coast (ref B). This shortsightedness
was lightly papered over by an increase in production of gas
for domestic consumption at the Nyaungdoun gas field (about
50 miles west of Rangoon). The field, which is being
unsustainably overdeveloped, is producing around 80 million
cubic feet per day (mcfd),up from about 60 mcfd a year ago.
The increase made up for the steady decline of Burma's other
major domestic gas field, A'Pyauk (about 50 miles northwest
of Rangoon),where production fell from 35 mcfd in mid-2003
to around 20 mcfd in mid-2004. A western energy source told
us that both gas fields should be tapped out within the next
couple of years, and there are no replacements being
considered.


3. (SBU) Industry estimates of Burma's total natural gas
demand (for power generation and industry) remain stable at
around 240 mcfd. To augment the roughly 140 mcfd the
government takes from Nyaungdoun, A'Pyauk, and a smattering
of other fields, the GOB continues to purchase between 25-45
mcfd of offshore gas from the foreign consortium that
operates the Yadana and Yetagun offshore gas fields. The
vast majority of the gas from these fields (around 900 mcfd
combined in CY 2004) is sold to Thailand under an existing
"take or pay" deal with Thai energy authorities. However,
the GOB purchases some and diverts it northward from where
the undersea pipeline comes onshore at Kanbauk in Tanintharyi
Division. This gas, except 4-5 mcfd which is sent all the
way to Rangoon, is earmarked for a GOB cement plant in
Myaingalay, though, so it does not impact the electricity
situation for Rangoon much. Rangoon's turbines do continue to
benefit from 8 mcfd of gas, previously being sent from
A'Pyauk to the plant, which is being reversed to feed
Rangoon's local power generation facilities.

Infrastructure Woes


4. (C) This supply shortage leaves a deficit of around 50-60
mcfd just to fuel Burma's anemic industrial sector and
handful of gas/diesel-powered generating turbines. When the
gap is filled, which it was not very often during the dry
season, it must be with expensive imported high-speed diesel
from Malaysia. Curiously, despite the apparent decline in GOB
purchases of diesel fuel, a reliable commodities trade
watcher told us imports of diesel remained stable in FY
2003-04 (April-March). We suspect much of this imported fuel
went to private generators (a necessity for all factories,
hotels, office buildings, and those homes that can afford
them) and trucks.


5. (C) However, supply of natural gas and the GOB's
willingness to import diesel are only half the problem.
Energy sources report that infrastructure is in dire
condition and there is little effort, or money, to fix it.
Burma's pipelines are in a worrisome state and at least 2 of
Rangoon's 11 gas/diesel-powered turbines are broken down.
These infrastructure woes are compounded by 35-year old
transmission lines (from remote hydropower plants which
provide around 50 percent of Burma's electricity) that leak
more than 40 percent of their load. The GOB seems to be
taking some preliminary action to address this latter
problem, seeking aid from South Korea to replace some or all
of the country's existing 132 and 230 kV transmission lines
with new 500 kV lines. However, there is no timetable for
this upgrade.

Water Remains the Future


6. (C) The GOB's 30-year energy plan is obsessed with
hydropower -- upgrading existing hydropower plants and
building a vast network of new ones -- with no contingencies
or strategies to capitalize on natural gas or other power
sources. Currently, about 50 percent of Rangoon's
electricity demands are met, or aren't met, by the aging
Lawpita hydropower dam (built by the Japanese with war
reparations) located east of Rangoon in Kayah State. It
seems unlikely with the political situation as it is that
on-again-off-again Japanese government financing for upgrades
to this plant will resume anytime soon. However, with the
help of significant and recurrent tranches of concessional
Chinese government suppliers credit (ref B),the GOB is
pressing ahead with a dozen hydropower projects aimed at
adding 2000 mw to country's power generation capacity by

2006.

Comment: No Strategy, No Power


7. (C) We don't see the GOB approach being successful in the
short run. Unpredictable onshore gas supplies could drop at
any time, making Rangoon consumers more reliant on imported
diesel or Godot-like hydropower. The latter seems unlikely.
In 2003, the GOB asserted that two plants with 480 mw
capacity would be finished by year's end. Neither was
completed. In 2004, the GOB is predicting that only one
plant near Mandalay with 75 mw capacity will be completed.
We are doubtful. Even if it is done, though, it will likely
have little impact on Rangoon's electricity woes. Nearly all
notable plants with a chance of completion in the next couple
of years are located in Upper Burma, far from Rangoon, and
aimed at electrifying Mandalay and the nearby town of Kyaukse
-- Than Shwe's hometown. Fortunately, Rangoon's residents and
businesses have become adept at dealing with the GOB's
damaging economic policies, and small-scale private power
generation should continue to make up for some of the slack.
End comment.
McMullen