Foreign direct investments in the electric power and mining sectors of Myanmar require a permit issued by the Myanmar Investment Commission (MIC). An MIC permit provides an investor tax, land use and other benefits. Under the Foreign Investment Law foreign investors can lease land for an initial maximum term of 50 years, and can be extended for two additional ten-year terms. With prior MIC approval, a long-term lease may be subleased or mortgaged.
Electric power in Myanmar. Currently foreign companies invest in electric power projects on the basis of build, operate and transfer (BOT) and Joint Venture (JV). Firstly, a memorandum of understanding (MOU) with the Ministry of Electric Power (MoEP) must be executed for conducting a feasibility study.
A memorandum of agreement (MOA) will be signed if the feasibility study has been approved. In this phase, environmental and social impact assessments will be conducted. Then the foreign sponsor(s) negotiate with the MoEP and other relevant ministries the details of various project documents, including, but not limited to, the JV agreement (JVA), BOT agreement, power purchase agreement and various loan and security documents.
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A major feature of the new Electricity Law includes establishing the Electricity Regulatory Commission, which gives advice to MoEP and region and state governments on tariff setting. In addition, MoEP, with cabinet approval, sets tariffs and issues permits for electric power projects connected to the national grid and projects with capacity of up to and more than 30 mw and regional and state government power projects not connected to the national grid. The implementing regulations for the law have not been issued yet.
Mining. Myanmar possesses a wealth of unexcavated gems, precious stones, coal and more, presenting great opportunities for Chinese investors.
The Mining Law and Mining Rules provide comprehensive framework for investments. The Ministry of Mines issues relevant permits for mining operations. The law is set to be repealed by a new law, or amendments to the existing law, in the near future.
Under MIC notification 49/2014, exploration and production of jade and gem stones, small- and medium-scale production of minerals, and exploration of minerals, including gold in the rivers and waterways, are generally prohibited for foreigners.
Chinese investors in Myanmar also should consider benefits of the China-Myanmar Agreement on the Promotion and Protection of Investment. There is not a double taxation agreement between China and Myanmar.
Lao PDR
Electric power. The Electricity Law requires that electric power projects involving foreign investors hold a concession. Electricity projects with an installed capacity of greater than 100 megawatts, or having a reservoir which has an area of more than 10,000 hectares, or having considerable impact on the environment, society or nature must be approved by the National Assembly Standing Committee (NASC).
Electricity projects with an installed capacity of more than 15 mw but less than 100 mw require approval by the government of Lao PDR (GOL) at the central level. Projects of up to 15 mw require provincial approval. The power tariff requires GOL approval regardless of whether the output is being exported or sold domestically. The maximum concession term for an electricity project is 30 years from the start of commercial operations.
If NASC or central level GOL approval is required, a lengthy and detailed negotiation process with the Department of Energy Business of the Ministry of Energy and Mines (MEM) is required. This involves three stages: MOU; project development agreement (PDA); and, finally, concession agreement. Execution of the MOU or PDA is no guarantee of a concession award.
GOL equity participation is no longer required for an electric power concession but, in practice, may be demanded by the GOL as part of the concession agreement negotiations. Generally, the GOL party will fund its own equity but may require assistance in arranging financing.
Mining. The Minerals Law requires investors in the mining sector to obtain approvals from the MEM for the gathering of basic geological data; the analysis of mineral samples; the feasibility study; the granting of licences for prospecting, exploration and mining activities; and the establishment of a mineral processing plant.
Generally, two separate concession agreements are now required, the first on the prospecting or exploration phase, and the second on the exploitation phase. Approval for the prospecting or exploration phase is no guarantee of award of an exploitation phase concession. The maximum initial term for an exploration licence is three years, with a possible two year extension. The maximum term for the exploitation phase concession is 20 years, with a possible five year extension upon MEM approval.
The Minerals Law provides that the GOL has the right to equity participation in all mining projects. The Minerals Law allows the funding of the GOL’s equity stake out of future dividends payable to the GOL by the project company.
Studies, mitigation plans and approvals. A feasility study and various environmental, social and health impact studies and impact mitigation plans will be required for most electric power and mining projects. Approval will be required from MEM, the Ministry of Natural Resourses and Environment and the Ministry of Public Health. The GOL does not take responsibility for the cost or implementation of any required resettlement of project-affected persons; this is a project responsibility.
Additionally, if a hydropower project is located on the mainstream Mekong River and will impact the dry season, the Mekong River Agreement requires compliance with a “prior consultation”.
Taxation, investment and double taxation agreements. Lao PDR electric power and mining projects are no longer granted broad exemptions from taxation. The standard corporate taxation rate is 24%. VAT is 10%. Limited tax holidays, lower tax rates and limited construction phase exemptions can be negotiated in the concession agreement but are generally subject to NASC approval.
The rights and benefits of the China-Lao Bilateral Investment Treaty and China-Lao Double Taxation Agreement should be considered by Chinese investors when investing in the Lao PDR.
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William D Greenlee, Jr, is the managing director, Myanmar, and head of China desk of DFDL in Yangon. He can be contacted on +95 1 526 180 or by e-mail at william.greenlee@dfdl.com
Rupert Haw is the managing director, Lao PDR, of DFDL in Vientiane. He can be contacted on +856 21 242 068 or by e-mail at rupert.haw@dfdl.com
