US embassy cable - 04RANGOON1057

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, Economy 
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