“Free” has a price

For the past three years, in col­lab­o­ra­tion with Chu­la­longkorn Uni­ver­sity, we have held a series of stake­holder meet­ings in Bangkok with cur­rent and poten­tial investors regard­ing the prospects for inde­pen­dent power pro­duc­ers, or IPPs, through­out Myan­mar. These work­shops have shed light on the IPP predica­ment fac­ing the coun­try and its neigh­bors. The “free power and free share” model — under which Myan­mar is enti­tled to free elec­tric­ity and stakes in such projects — fails to deliver pros­per­ity, as fair mech­a­nisms for allo­cat­ing the ben­e­fits are not insti­tu­tion­al­ized. Often, local com­mu­ni­ties do not receive elec­tric­ity and lose out on alter­na­tive invest­ments in energy resources that require less trans­mis­sion and dis­tri­b­u­tion infrastructure.

Banks play a key role in dri­ving such agree­ments. Until now, IPPs have tried to max­i­mize exports to neigh­bor­ing coun­tries and min­i­mize finan­cial risk in emerg­ing mar­kets like Myan­mar. The lack of cred­i­bil­ity among Myanmar’s power util­i­ties enables neigh­bor­ing coun­tries to take advan­tage of lax reg­u­la­tions and oppor­tu­ni­ties for lucra­tive invest­ment at the expense of local vil­lagers. As the Myan­mar gov­ern­ment often can­not grant con­ces­sions to cross-​​border IPPs due to a high risk of credit default, the ben­e­fits remain unre­al­ized in many cases.

Most of the hydropower devel­op­ment pro­pos­als in the Sal­ween river basin dur­ing the last decade have not been built. A few large-​​scale cross-​​border IPPs cur­rently oper­ate in trib­u­taries of the Irrawaddy River, includ­ing Shweli1, which has installed capac­ity of 600MW, and Dapein1, which has 240MW. While the elec­tric­ity gen­er­ated there is mainly exported to China, the IPP agree­ment grants 10–15% of total project gen­er­a­tion and share­hold­ings for free to Myanmar.

The con­ven­tional wis­dom is that “free power, free share” remains a pre­req­ui­site for con­ces­sions by Myan­mar. But this con­cept is inher­ently flawed.

For exam­ple, our field sur­vey in Shweli1 makes it clear that 15% of gen­er­ated power is pro­vided for free to the state-​​owned min­ing com­pany and mil­i­tary camp, while neigh­bor­ing towns must pur­chase elec­tric­ity at 4–8 cents per kilowatt-​​hour and vil­lages must re-​​import elec­tric­ity from China at 20 cents per kilowatt-​​hour. These tar­iffs are higher than tar­iffs on the grid.

To make things worse, the “free” ben­e­fits in Myan­mar fuel con­flict by com­pound­ing inequal­ity among civil­ian groups. One exam­ple of this is the Mong Ton dam in Shan State, pro­moted by the pre­vi­ous mil­i­tary gov­ern­ment. Non­govern­men­tal con­ser­va­tion groups held an anti-​​dam cam­paign “to urge the gov­ern­ment as well as Chi­nese and Thai investors to imme­di­ately stop plans to build dams, as this is caus­ing con­flict and directly under­min­ing the peace process,” as Burma Rivers Net­work put it. Sal­ween Watch, a civil soci­ety watch­dog, sees the con­struc­tion of dams as “one of the strate­gies used by the mil­i­tary regime to gain for­eign sup­port and fund­ing for its ongo­ing war effort” while view­ing dams as “a strat­egy to increase and main­tain its con­trol over areas of eth­nic land after many decades of bru­tal conflict.”

With the demo­c­ra­t­i­cally elected NLD gov­ern­ment hav­ing taken power in 2015, Myan­mar has an oppor­tu­nity to escape past night­mares and begin to dis­trib­ute ben­e­fits equi­tably. Cer­tainly, mon­e­tary com­pen­sa­tion and free power seems appeal­ing to local com­mu­ni­ties in need of elec­tri­fi­ca­tion and eco­nomic devel­op­ment. How­ever, as the NLD rightly states, it is much more crit­i­cal to secure liveli­hoods and the envi­ron­ment by pur­su­ing sus­tain­able devel­op­ment practices.

Vil­lagers depend on income from nat­ural resources, includ­ing for­est and fish­eries prod­ucts. Our field sur­vey regard­ing the Mong Ton hydropower devel­op­ment shows that local vil­lagers cite defor­esta­tion, river flows and flood dam­age as their top dam-​​related con­cerns. Inves­ti­ga­tions into the effects of dam con­struc­tion are crit­i­cal under­tak­ings that must become part of the hydropower decision-​​making and plan­ning process. With­out them, there can be no trust, and a strong local back­lash against the influ­en­tial, military-​​tied Min­istry of Inte­rior is inevitable.

Start with science

In the past, Myanmar’s gov­ern­ment glo­ri­fied dams while envi­ron­men­tal groups vil­i­fied them. Nei­ther stance was grounded in rig­or­ous sci­en­tific eval­u­a­tions, and each side’s argu­ment fed the other’s dis­trust — cre­at­ing resent­ment and ham­per­ing dialogue.

To move for­ward, we rec­om­mend estab­lish­ing reg­u­la­tions on envi­ron­men­tal impact assess­ments that include pub­lic dis­clo­sures. Build­ing reli­able insti­tu­tions to enforce such rules poses a chal­lenge, but doing so could help to bridge the gap between groups and restore trust — some­thing that has been lost in Kachin and Shan states since 2011, as recent flare-​​ups in vio­lence demonstrate.

The tim­ing is urgent. The peace process remains on the cusp of an agree­ment. Rural elec­tri­fi­ca­tion efforts are under­way, but we know that dis­trib­uted mini-​​grids from local solar and hydropower resources can be built and deployed faster than megapro­jects, sup­port­ing peace efforts. The oppor­tu­nity cost of inac­tion is high. Con­tin­u­ing the Myit­sone project as a con­ces­sion to China, mean­while, could undo half a decade of peace nego­ti­a­tions and fur­ther dam­age the envi­ron­ment while neg­a­tively impact­ing vil­lagers and their livelihoods.

In short, increased trans­parency and local engage­ment could usher Myan­mar toward peace and pros­per­ity. At the same time, it is up to the inter­na­tional com­mu­nity to expand the country’s intel­lec­tual and insti­tu­tional capac­ity. We can sup­port Myanmar’s infra­struc­ture devel­op­ment not only through hard and soft loans, but also with tech­ni­cal assistance.

Myan­mar needs envi­ron­ment– and people-​​friendly hydropower plan­ning. Only then will the projects sup­port peace-​​building rather than conflict.

Noah Kit­tner is an NSF grad­u­ate research fel­low and doc­toral stu­dent in the Energy and Resources Group at the Uni­ver­sity of Cal­i­for­nia, Berke­ley. Ken­suke Yam­aguchi is a project assis­tant pro­fes­sor at the Uni­ver­sity of Tokyo Pol­icy Alter­na­tives Research Insti­tute. This was devel­oped in con­junc­tion with the Pro­gram on Con­flict, Cli­mate Change, and Green Devel­op­ment in the Renew­able and Appro­pri­ate Energy Lab­o­ra­tory.

For the arti­cle link in Nikkei Asia Review, click here.