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Client briefing note | 31 July 2017

A combination of recent law and policy


developments has put in motion a tectonic
shift for the fuel sector in Myanmar. Since
a few months, foreign investors have a
much larger access to invest in petroleum
products businesses, and are no longer
required to conclude a joint venture with
the Ministry of Electricity and Energy
(MOEE).

We are a network of leading law and


tax advisory firms with offices in THE NEW LAW AND MARKET ACCESS FOR
Cambodia, Indonesia, Laos, Myanmar
and Vietnam. PETROLEUM PRODUCTS IN MYANMAR
Our general areas of practice are
corporate, finance, licensing and A combination of recent law and policy Highlights of this note
disputes. developments has put in motion a
Our principal specialized areas of tectonic shift for the fuel sector in Key changes
practice are energy, infrastructure, Myanmar. Since a few months, foreign Which projects can no longer receive a
real estate and construction , telecom investors have a much larger access
Permit?
and taxation. to invest in petroleum products
businesses, and are no longer required Do these thresholds make sense?
There are three things you need to to conclude a joint venture with the Construction Period extension remains
know about our approach:
Ministry of Electricity and Energy
too rigid
1. We deliver the ultimate in (MOEE). At the same time, a newly
ground connectivity. updated Petroleum Products Law has The indirect offshore transfer of shares
been issued to govern the import, now also needs MIC permission
2. Our quality is trusted by the
most discerning. storage, transport, processing and
How does the Endorsement procedure
distribution of all kinds of fuel products.
3. We never give up. And finally, a recent unpublicized shift work?
in company regulator practice makes Land Right Authorizations better outlined
it now possible for foreign companies
New investor responsibilities
to buy shares in pre-existing, Myanmar
PROGRESS REPORT 2016 national owned companies owning The list of required insurance policies
MYANMAR fuel terminal or marketing assets. The has been modernized
perfect storm of these three interesting
Some final practical and logistical issues
developments is bound to, and already
has, boosted interest by a wide range Structuring Options Fuel Terminal &
of market players. Marketing Project

In this client briefing note, we briefly


examine the new legal and regulatory
landscape for petroleum product NOTICE:
businesses in Myanmar. We are hosting a client briefing event
entitled The New Law and Market Access
What were the obstacles to market for Petroleum Products in Myanmar -
PROGRESS REPORT access? Update on Import, Terminals, Storage,
2016 Distribution and LNG in Yangon on 18
There are, or rather were, three
main obstacles preventing foreign August 2017 from 09.00am-11.30am. To
Myanmar
companies from entering the attend, you can request an invite from
petroleum products sector in Nidhi Shenoy at nidhi.shenoy@vdb-loi.
https://goo.gl/jfdQ4U Myanmar. com.

Page 1
1. The requirement of joint venture comprehensive) list of activities for which foreign investors need a local partner
with the Government: in Myanmar, does not mention anything of the kind. However, in our view, despite
2. The policy that foreign owned Notification does not impose a local partner, the final decision as to whether a local
companies may not engage in any partner is merely desirable or required, has not yet been taken.
trading;
3. The practical impossibility for But, note that Notification 15 only concerns investments under the Myanmar
foreigners to buy shares in a Investment Law 2016 (MIL). Projects which are too small or which for some other
Myanmar-national owned company. reason do not qualify as an investment project do not benefit from Notification 15;

All three of these obstacles have, at least For the remainder (projects which are not investments under the MIL), the Government
to a very large degree, been removed. policy to, except for a few exempted businesses, not allow foreign invested companies
to engage in pure trading (in this case mainly import and domestically reselling of
The requirement of JV with MOEE is fuel) remains in place as far as petroleum products are concerned. That means that
gone foreign companies are not allowed to import and distribute fuel products, that is,
except in the context of an investment project under the MIL and Notification 15.
In 2014, the storage, transport, pipeline,
jetty or terminal and distribution of
all petroleum products was suddenly Foreign ownership Tax holiday
Activity MIC Permit
restrictions available?
restricted from foreign investors.
Notification 49/2014, decreed that 1 Fuel terminal and Allowed as JV or Required No tax
foreign investors would only be storage perhaps also as 100% holiday
permitted to invest in this activity under foreign owned.
a JV with the MOEE. As we pointed out at
the time, this move was made to support 2 Fuel terminal, Allowed as JV or Required No tax
the previous Governments initiative to storage, import and perhaps also as 100% holiday
find foreign JV partners for a number of distribution foreign owned.
state owned assets. As a result, only very
3 Import and No foreign ownership Possible if No tax
few foreigners succeeded to enter this
distribution allowed unless as an project cost holiday
sector, such as PUMA in the aviation fuel
wholesale MIC project. exceeds 20MUS$
segment in joint venture with the MOEEs
MPPE. Most others had to content 4 Import and No foreign ownership Possible if No tax
themselves with supplying fuel from distribution retail allowed unless as an project cost holiday
offshore. MIC project. exceeds 20MUS$

In 2017, by means of Notification 5 Regasification Most likely allowed Required Tax holiday
15/2017, these foreign ownership service of LNG and up to 100% foreign available
restrictions have been abolished, and other processing ownership.
are replaced with a general requirement 6 Import and Allowed as JV or Required Tax holiday
of obtaining MOEE approval for the regasification of perhaps also as 100% available
investment project in the petroleum LNG, sale of gas foreign owned.
sector. But, no new comprehensive
regulation was issued explaining the
A foreign company can now buy shares in an existing Myanmar-national fuel
new policy in any detail. So, what exactly
terminal business
is permitted for foreign investors in the
petroleum products sector is not spelled As most readers are aware, a wholly Myanmar national owned company (a Myanmar
out anywhere. national company) cannot have any foreign shareholders. This means that a pre-
existing company owned by Myanmar nationals holding, for example, a fuel terminal
Foreign companies are allowed to lease, cannot issue or transfer shares to a foreign investor. The New Myanmar
do trading, but only as part of an Companies Act, currently being debated by the National Assembly, aims to change
investment project that by allowing 35% foreign shareholding without the company losing its status as
The Myanmar rules setting our which
products foreigners may trade still do
not include petroleum products. But, the
practice of both the MIC and the MOEE
now indicates that a foreign invested
company in energy infrastructure may
indeed also carry on a trading activity of
fuel.

What is more, in theory at least, foreign


companies do not need a local partner
for investments in petroleum products
businesses in Myanmar. Notification Government Guarantees for PPP Projects in Myanmar
15, which provides in a (probably non- March 31, 2017, Nay Pyi Taw.
Page 2
of any international port.

These land leases, with and without port


terminal concession, are a major element
in determining the more efficient
structure for any fuel terminal project.
The foreign investor will of course prefer
that the (master) lease is issued directly in
the name of the foreign invested project-
or joint venture company. Why take the
risk that something happens with the
master lease, which may detrimentally
Building Yangon: Property and Urban Infrastructure Market & Legal Update affect the sublease as well? Not all local
04 April 2017, Yangon. partners are happy with a direct master
lease from the MPA to the JVCo, as it
a Myanmar national company. But this to transfer (for example because land reduces their leverage.
change is not yet in force and as it is owner consent for the sublease or lease
somewhat controversial, it might never assignment takes too long) parties may There are several situations possible. In
become applicable. consider instead to turn the pre-existing some cases, the master lease from MPA
company into the JVCo. Of course that was already issued in the local partners
The demarcation line between would only be possible if the to-be-JVCo name, or the local partner has through
Myanmar national companies and has no legal or tax exposure to speak some other means already obtained the
foreign companies has however been of, which can be ascertained in a due land rights from another Government
crossed when in 2016, VDB Loi achieved diligence. agency, such as a Regional Government,
for the first time the conversion of a or from a private land holder.
Myanmar national company into a How can a foreign invested
foreign company without the formation company obtain the land rights for Now the question becomes if the
of a new legal entity. a fuel terminal lease? existing lease should be assigned to the
Not all land is suitable for a fuel terminal new JVCo (so that JVCo would have a
Ever since, the regulator can on a case direct lease with the land owner), or if
by case basis and if following the same project. Given that the land is adjacent
to a navigable waterway, we usually see instead the local partner will keep the
compliance route as we did at that time- land right in his name, and will provide a
allow any Myanmar national company to that a land lease from the Ministry of
Transport and Communications (MOTC), sublease to the JVCo. Both situations are
convert into a foreign company. There is possible under the investment law, but
no cap of 35% as under the (Draft) New through the Myanmar Port Authority
(MPA), is involved. Incidentally, as you both usually require the consent of the
Companies Act. The foreign investor land owning authority. The process for
can own up to 100% of the pre-existing are probably already aware, a foreign
invested company can only lease land obtaining that consent is not regulated,
company, provided there are no foreign and the authority does not have to
ownership restrictions to the activities in Myanmar for periods of 50+10+10
years. The lessor can be a Government agree.
the company carries out.
agency or a private land right holder. In
any event, the MPA is the regulator for It is a major challenge for foreign
The consequences for the fuel terminal investors to get a clear view on the
sector cannot be underestimated. It is a all facilities where goods or persons are
being brought into Myanmar from an authoritys position, and this is often
new option very few people are aware virtually undoable if communications
of. If the assets are too cumbersome overseas location, as the administrator

Page 3
are mainly run through the local partner, The definitions of import and export The New Law also allows for the MOEE
who may have his own agenda. In are broadly defined. Import and export and any Relevant Ministry to enter
our experience, a close and open both are defined as the bringing of the places where LNG is being used in any
coordination between the teams product into Myanmar through sea, air, commercial setting in order to ascertain
managing the MIC process and the MPA pipeline or any other matter. Specifically if the product is being kept or used in
approval process is absolutely necessary. excluded from the definition of import compliance with the provisions of this
is transport across the territory of law or related notifications.
One possibility half way between Myanmar.
the direct lease and the sublease, is a Formation of a Supervisory
sublease where the MPA recognizes the Regulatory power in the New Law Committee
sub-lessees rights (and his lenders) in
case of termination of the master lease. The New Law provides broad powers Under the New Law, the MOEE is to
on the Ministry, Relevant Ministries and form a supervisory committee in order
Another alternative is to use the existing the Committee in order to regulate LNG to systematically supervise and control
lessee, which already has received the (and other petroleum substances). import, export, storage, transport,
land rights, as the JVCo. The foreign refining, distribution and sales of
investor would have to purchase or Importantly, in respect to LNG, the New petroleum and any petroleum product
subscribe shares into the company Law allows the Relevant Ministry to set performed by the private sector.
which already received the land lease the terms and conditions in relation
rights. This alternative structuring option to import and export, prescribe the The duties of the Supervisory Committee
was explained above. place for import and export, prescribe are broadly defined to include:
the periods within which licenses for
Highlights of the New Law on the import and export shall be applied Supervising import, storage,
Petroleum Products: expanded for, and gives the power to confiscate transport, refining, distribution,
definition or handle any products for which the sales of petroleum and petroleum
relevant license has not been applied. products under the licenses;
The New Law has an expanded definition Ensuring standards, quality, and
of petroleum products. LNG, LPG and It provides the Ministry with broad accurate measurement;
compressed natural gas (CNG) are now discretion over LNG in terms of transport Forming Supervisory Sub-
expressly included as a petroleum and cross border transport, specifying committees for each region and
product, which additionally includes the way in which LNG must be stored, state;
any compound containing hydrocarbon or the terms and conditions of any Environmental protection;
obtained from petroleum processing other matter which it deems expedient Designating testing labs; and
and refining, or anything designated as for proper control over import, export, Taking action against non-
a Petroleum Product by the Ministry. transport, transfer, receipt, storage, complying entities.
testing or distribution and sales of LNG.

Structuring Options Fuel Terminal & Marketing Project

1. 2. 3.
Sell shares in
Foreign Foreign Local JV Co Foreign
Investor Investor Partner Investor
Shareholder

Shareholder Shareholder Shareholder

New Co New Co Local Partner


Local Shareholder Local Shareholder
JV Co JV Co JV Co
Partner Partner
Myanmar Myanmar Myanmar
Convert Myanmar
national company to
Existing Existing Existing
foreign company
lease Assign lease lease Sub lease lease
(Capital in kind) (As capital in kind)
Fuel Fuel Fuel
Terminal Terminal Terminal
Business Business Business
Approval Approval

Land Owner Land Owner Land Owner


Government Government Government

Page 4
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The New Law and Market Access for Petroleum Products in Myanmar -
Update on Import, Terminals, Storage, Distribution and LNG in Yangon on MIC lists ten priority sectors for
18 August 2017 from 09.00am-11.00am quicker approvals
A New Energy Landscape in
In this highly practical client briefing event, VDB Loi shares its outstanding
Myanmar
experience working in this space with supermajors, petroleum product marketing
companies, Governments and international institutions. Here are the highlights:
DOWNLOAD OUR EXPERIENCE
Import, trading, storage, transport: Which activity is now allowed 100% HERE
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and regasification projects? Energy and Infrastructure


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business: a new structuring option has opened up by a change in the
The energy and infrastructure team in our firm has one goal:
using the unique local knowledge and relationships we have
spent years building up, to give your deal the edge. We are the
ultimate in ground connectivity.

regulatory practice; International financial institutions are confident in our


advice, choosing us for several of their largest-ever financing
transactions in our markets. Governments trust us to act for them

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Our ability to navigate government administrations is

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Cambodia
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Laos
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provisions? Vietnam

To attend, you can request an invite from Nidhi Shenoy at nidhi.shenoy@vdb-loi. Commercially creative firm with very high standards. It has advised
on the tender process and financing for various infrastructure projects,
as well as the privatisation of state-owned entities.

com.
Legal 500

https://goo.gl/BFMLEK

CONTACT ENERGY TEAM


VDB Loi has created a practice team to support the partners
comprising foreign and locally qualified lawyers and regulatory
advisers work exclusively on Energy matters.

Edwin Vanderbruggen Charles Magdelaine


Senior Partner, VDB-Loi Team Leader
edwin@vdb-loi.com charles.magdelaine@vdb-loi.com

Edwin Vanderbruggen is one of the most prominent foreign legal The Energy team is led by Charles Magdelaine. Charles is a
advisers in Myanmar, and he is widely recognized for his experience French lawyer qualified to practice in Paris educated in France,
in the energy and infrastructure space in Myanmar. Edwins the United States and China. He has extensive experience in the
experience working with the Myanmar Government is second to documentation, financing and negotiation of energy projects in
none, as he advises the Government on privatization transactions Southeast Asia, and Myanmar more in particular. Charles focuses
and PPPs in energy, transport and telecommunications. He and on oil and gas, infrastructure, power and other natural resources
his team have uniquely extensive experience in electric power, projects.
and were involved in four out of five of the Myanmar gas and
renewable projects concluded in March 2016, and he advised the
Japanese Government on their investment in the Thilawa SEZ.
Edwin worked on the planning, negotiation, documentation and
financing for projects of all types of power generation, including
gas, coal, hydro, solar, wind and W2E in Myanmar. He also advises
four of the super majors on oil and gas interests in Myanmar and
on the first LNG terminal in the country. He lives in Yangon.

YANGON NAY PYI TAW


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