US embassy cable - 05RANGOON1121

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, Economy 
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