ENERGY MINISTER: EXPORT RECEIPTS TRUMP POWER NEEDS

C O N F I D E N T I A L SECTION 01 OF 02 RANGOON 001121

SIPDIS

STATE FOR EAP/MLS, EB; INR/B; PACOM FOR FPA; COMMERCE FOR
ITA JEAN KELLY; TREASURY FOR OASIA

E.O. 12958: DECL: 08/28/2015
TAGS: ENRG PGOV PINR ECON BM
SUBJECT: ENERGY MINISTER: EXPORT RECEIPTS TRUMP POWER NEEDS

REF: A. RANGOON 1094

B. RANGOON 1027

C. RANGOON 381 AND PREVIOUS

Classified By: CDA Shari Villarosa for Reasons 1.4 (b,d)


1. (C) Summary: A courtesy call on Burma's Minister of
Energy, Brig Gen Lun Thi, revealed GOB confidence that it can
generate increased revenues through natural gas exports while
meeting domestic energy needs with new hydropower projects.
Lun Thi, one of the GOB cabinet's longest-serving members, is
well regarded and has been highly successful in his primary
mission to generate hard currency through the export of
natural gas. However, he, like others in the GOB, glossed
over Burma's serious domestic energy crisis. A continuing
reliance on expensive diesel fuel imports, and overly
optimistic plans for hydropower solutions, means that that
the light at the end of Burma's energy tunnel will remain
dim, if not unlit. End Summary.


2. (SBU) On September 30, the Charge, joined by P/E Chief,
called on Burma's Minister of Energy, Brigadier General Lun
Thi. The Minister was joined by six aides, including his
Deputy Minister, Brig Gen Than Htay, and U Sein Tin Win, the
Managing Director of the state-owned Myanma Petroleum
Products Enterprise.

DRILLING FORTH
--------------


3. (U) Minister Lun Thi gave an overview of gas and oil
exploration efforts in Burma, and said that to date the GOB
has secured production sharing contracts (PSCs) for 16 of 18
offshore blocks. According to press reports, Daewoo
International Corp. signed a formal agreement on October 3 to
begin exploration of a new Rakhine offshore block; the
company is head of a consortium that also includes India's
Oil and Natural Gas Corp., the Gas Authority of India, and
South Korea's state-run Gas Corp. Among seven active onshore
blocks (all located in/near Rakhine State in western Burma),
the GOB has secured four PSCs with companies from India,
China, and South Korea.


4. (C) Lun Thi said that preliminary drilling in the recently
opened Rakhine offshore blocks, conducted primarily by
Daewoo, had yielded minimally encouraging signs of new
natural gas reserves, but he added that "we won't know all
the results until February 2006, at which time we'll decide
on next steps." The Minister noted that all the potential
reserves in this region would be for export only and he
outlined several post-production options, including direct
exports or exports of electricity to be produced by a new
power plant


5. (SBU) According to Lun Thi, the GOB within the past few
weeks instituted a new policy that reserves onshore
exploration solely for domestic enterprises, with no foreign
participation in any new projects. Offshore blocks, however,
remain open to joint ventures. He also indicated that
foreign investment might be welcome in downstream
distribution arrangements (e.g. LNG plants and/or pipelines).
The state would build projects to serve the domestic sector,
although he was vague about revenue sources.

WHAT ENERGY CRISIS?
--------------


6. (C) Lun Thi demurred, in part, when the Charge inquired
about his ministry's plans for meeting domestic energy needs.
He described his portfolio as limited to oil and gas issues,
identifying the Ministry of Electric Power as responsible for
domestic energy production. He stated, however, that Burma
"doesn't need more natural gas for domestic consumption,"
explaining that the GOB would only keep oil or natural gas
condensate and export all other fuels for hard currency. The
GOB, he said, had no plans to pursue a gas-to-liquid (GTL)
conversion plant for domestic energy, because it would
require a prohibitively expensive investment of over one
billion dollars.

7. (C) When pressed to address Burma's well-known energy
supply shortage, Lun Thi downplayed the crisis and said that
hydropower is "a very sure" supply source for Burma. The
GOB, he said, will complete "within the coming year" three of
four hydropower plants currently under construction. A
massive 800 megawatt plant at Yeywa (near Mandalay) will be
completed in 2008. He added that over the past year the GOB
had converted 3,800 vehicles to natural gas, leading to a
"significant reduction in fuel consumption." He
acknowledged, however, that a primary use of natural gas
export receipts is for the costly purchase of imported diesel
that in turn accounts for a significant portion of Burma's
paltry electricity grid.

BIO NOTES: A GOOD REPUTATION
--------------


8. (SBU) Bio Note: Minister Lun Thi, a confidante of Sr Gen
Than Shwe, is one of the longest serving members of the GOB
cabinet, having been appointed in 1997 when the regime
underwent a major reshuffle and changed its name from the
"SLORC" to the SPDC. Among foreign and domestic companies
who interact with him on a regular basis, the 65-year old Lun
Thi enjoys a reputation for good management and technical
skills. He is a thorough military man ("A soldier who relies
on the technocrats," he described himself) and graduated at
the top of his class in 1962 from the prestigious Defense
Service Academy.


9. (C) He is concurrently (since 2002) the Chairman of the
Foreign Investment Evaluation Committee, with the authority
to approve or reject export permits. He conversed easily in
English, without an interpreter. Among recent courtesy calls
at the cabinet level, Lun Thi has been the only Minister that
actively encouraged his deputies to join in the conversation.
One director felt comfortable enough to interrupt in Burmese
so the Minister could correct himself on a factual point.
End Bio Notes.

COMMENT: NO LIGHT AT THE END OF THE TUNNEL
--------------


10. (C) The Energy Minister's primary mission is to generate
hard currency through the export of natural gas. Lun Thi's
success in this regard, combined with his lack of
responsibility for meeting domestic energy needs, probably
accounts for his confidence and openness during this courtesy
call, a remarkable contrast to other members of the cabinet
who have been evasive, critical of sanctions, and overly rosy
in their assessment of domestic conditions (refs A, B). Lun
Thi did, however, gloss over Burma's deteriorating energy
situation. By our estimate (ref C),Burma has a 30 percent
shortfall in electricity supply, and spends over $250 million
per year on diesel imports, roughly one third of natural gas
receipts. Projected hydropower sources will do little to
close the growing gap and, according to many business
sources, will certainly not be the engine of growth necessary
for a small, but power-hungry industrial sector. End Comment.
Villarosa