feasibility study for introduction of lng receiving ... · pdf filefeasibility study for...

Study on Economic Partnership Projects

in Developing Countries in FY2013

Feasibility Study for Introduction of LNG Receiving

Facilities in Myanmar

Final Report

【SUMMARY】

February 2014

Prepared for:

The Ministry of Economy, Trade and Industry

Ernst & Young ShinNihon LLC

Japan External Trade Organization

Prepared by:

The Japan Research Institute, Limited

Mitsui O. S. K. Lines, Ltd.

JGC Corporation

Sumitomo Mitsui Banking Corporation

(1) Background and Necessity of the Project

1. The Myanmar Government’s Development Programs in the Gas and Electricity Sectors; Priorities of Projects

Based on Future Prospects

a. Ministry of Energy’s gas production and supply plans

Myanmar produces natural gas. The Ministry of Energy (MOE), which is responsible for oil and gas sector from

gas exploration and production to distribution, has been promoting the development of offshore gas fields; for

example, Zawtika and Shwe fields are expected to start gas production in 2014, and M3 field in 2020. Most of the

produced gas within Myanmar, however, is exported to China and Thailand, so the domestic gas demand cannot

be sufficiently satisfied.

b. Ministry of Electric Power’s power development plan

The Ministry of Electric Power (“MOEP”) has drawn up power development plan that covers years up to 2030.

The Ministry plans to increase power capacity in tandem with the demand growth. The MOEP plans to build

several new gas-fired power plants to secure short-term power sources, especially for the dry season in Yangon

where electricity demand is very large. These plants are scheduled to start operating sometime between 2013 and

February 2016, with their planned capacity up to about 4.2 GW (see the chart below). The IPPs plan to build three

new power plants (BKB, UREC, Hydrolanchang) and are in discussion with MEPE for the signings of MOUs

(Memoranda of Understanding) for the Feasibility Study and/or PPA (Power Purchase Agreement).

Table Summary-1: Gas-Fired Power Plants Being Built or To Be Built in Myanmar

Source: Created by the research team based on information provided by the MEPE and an interview with the

NEWJEC

Although the MOEP and IPP projects have been proceeding with the construction of additional gas-fired power

generation facilities, they have been unable to increase the natural gas supply for the power generations, owing to

the tight gas supply-and-demand situation in the country.

Under these circumstances, the MOEP asked for a public bidding for importing LNG for gas-fired power

generation in July 2013. The study team interviewed the MEPE and found out that this was to obtain gas for IPPs

that are supposed to newly engage in gas-fired power generation mainly in the Yangon area. Applications are

received and reviewed by the Yangon Electricity Supply Board (YESB), which is a Yangon-based government

entity owned by the MOEP.

2. Project Scope and Expected Users

This study firstly examined the LNG supply chain from the LNG purchase to its consumption, and then clarified

certain project to be developed using expertise of private sector, in which Japanese enterprises will support to

start yearCapacity

(MW)

2014 26

2014 28.55

2014 243

2016 243

MSP 2013 52

EGAT 2014 240

2014 82

2015 39

CIC 2013 53.6

2015 167

2016 336

2014 127

2016 386

2016 500

2016 50

2021 500

2015 98

2016 132

Kyaukphyu/Rak

hine StateMOEP 2014 50

2015 175

2016 350

Myin Gyan Myin Gyan 2016 250

Kyause Rental 2013 100

Yangon

Other area

in Myanmar

Name

Hlawga

Zeya

Hydrolanchang

（IPP,China)

Ywama

Myanmar Lighting

Dawei Power

UtilitiesKanpouk

Mawlamyaing

Ahlone Toyo-Thai

Thaketa

BKB

(IPP,Korea)

UREC

(IPP,China)

Hlaingtharyar

Thilawa

Ayeyarwaddy

install storage and regasification facilities (i.e., facilities for receiving LNG) and facilities for gas transport to the

point of demand or the point of delivery designated by gas users.

It is difficult to analyze future national gas demand with limited research period, which is acceptable for the

investment decision of LNG import facility,. Therefore, this research assumes that imported gas is used to meet

the demand only for gas-fired power generation based on the master plan developed by MEPE

The MEPE owned by the MOEP purchases from the MOE home produced gas supplied to existing gas-fired

power plants. Through the interview with the MEPE and other relevant entities, the study team concludes that

MEPE will be able to play the same role for not only domestic gas produced but also imported LNG. Namely,

MEPE becomes the purchaser from LNG supplier and distributor to IPPs. Since MEPE is the sole entity to import

LNG in Myanmar, it is expected to have bargaining power to negotiate the LNG price with suppliers.

3. Effects of the Project

As stated earlier, domestic demand for natural gas has not been filled in Myanmar. Natural gas is used not only for

power generation, but also for petroleum refining, fertilizer production, iron manufacturing, utility gas, and other

purposes. The natural gas supply is vital for Myanmar, in order to accelerate the economic development.

Installation of FSRU will enable Myanmar to receive LNG with a relatively short lead time. This will contribute

to balancing natural gas supply-demand, hopefully bringing the following effects:

• The operating rates of gas-fired power plants will rise and more electricity will be generated, which will

make outages shorter and less frequent.

• Increased electricity supply will enlarge the national industrial platform increasing manufacturing and

production capacity of the country that will lead to improve standard of living of the population.

• There will be larger domestic supplies of gas for petroleum refining, fertilizer production, iron

manufacturing and utility gas, which will strengthen cost competitiveness and increase industrial

production volumes.

(2) Parameters/ Items in Determining Project Details

1. Demand Forecast

Demand estimation for LNG gas using the formula below:

Demand for LNG import = Quantity of gas needed for gas-fired power generation – Domestic gas

production x Percentage of gas distributed to electric power sector

Quantity of gas needed for gas-fired power generation

As mentioned before, the MOEP has drawn up power development plans that cover years up to 2030. This study

assumes that additional gas-fired power plants will be built according to the plans. The current plans state that

additional power plants will be completed by 2016 or 2017, and that the government will ensure steady electricity

supplies mainly through hydropower generation plants that require some development period.

With regard to the domestic gas production, many onshore and offshore projects are underway as mentioned

above, although many of them have not specified when production will begin and how much gas they aim to

produce except for certain gas fields. This study assumed only the production volumes from the ZawtikaShwe,

and M3 gas fields, for which the MOE is scheduled to launch development projects additional domestic gas

production volumes. The supply from domestic gas fields will be 290 BBtud between 2013 and 2014, and then

476 BBtud between 2020 and 2021.According to the MOE, how much domestic gas production will be distributed

for electricity generation in the future has not yet been decided, while 60 to 80 percent of the domestic gas

production has usually been reserved for electricity supply. This study assumed that the 65 percent of gas to be

supplied by the MOE will be distributed to electricity sector during 2013 and 2014. Additionally, although specific

LNG supply sources have yet to be determined, the team assumed that the calorific value of LNG is 1,040 Btu/cf,

which is the typical level in the market.

Given these assumptions, LNG demand for gas-fired power generation is expected to rise to 72 mmscfd between

2013 and 2014, and then to 354 mmscfd between 2016 and 2017. From 2020 onward, the demand will depend on

trends in the development of new domestic gas fields, while it is expected to be around 350 to 450 mmscfd.

Figure Summary-1: Demand for Imported LNG in Myanmar

Source: Created by the research team

2. Identifying and Analyzing Issues before Exploring and Determining Project Details

To define the detail of the project, the below items are studied/ studied;

Site to install FSRU and specification

Options for ownership FSRU

Options for introducing an FSRU

Jetty design

Pipeline construction route and specifications

Financing pipeline construction

LNG procurement

(3) Project Outline

To overcome electricity shortage as soon as possible, MOEP is considering LNG import for electric power

generation. As the demand forecast shows, the amount of gas needed is meant to fill the gap between domestic gas

supply and gas demand based on the capacity of gas-fired power plants in the power development plan.

Given this background, MOEP intends to realize quick start of LNG import. However, further discussion on the

detail including required cost to be held through, among MOEP and relevant entities. In this study, the team

examined project details in accordance with the physical and financial restrictions mentioned earlier, and with the

needs of the various Myanmar government organizations.

1. Project Site

Taking into account such factors as the intention of the Myanmar government physical constraints and economic

efficiency, FSRU should be installed 80km offshore from the Yangon River, and a gas pipeline route will be laid

up to South Dagon in the existing pipeline network in Yangon.

The water depths should be at least 13m for a regular LNG carrier to safely approach. However, as detailed data

on the depth of water from recent years is unavailable, the team used a nautical chart to pick areas about 15 m

deep just to be on a safer side.

The team regard to pipeline, analyzed the three cases, considering location of an FSRU, the distance and route to

the land, ensuring that the route between S. Dagon and Thilawa is in line with the Myanmar government’s

expansion plan. The required length of onshore pipeline on the route will be 50 km.

The Myanmar Port Authority (MPA) in charge of the Yangon River requested that the offshore gas pipeline route

bypass the Yangon River (i.e., the pipeline should not run across the riverbed)), if possible The team took this

request into account in selecting recommended pipeline route. With regard to the offshore pipeline, we based our

examination on the parts immune from the plan for building the large deep-water port and other plans.

2. Specifications for Equipment Introduced

a. FSRU specifications

The team assumed a newly-built FSRU with the tank capacity of 173,000 m3, which is close to the capacity of

150,000 – 160,000 m3 that many of the countries placed their orders in the recent years.

b. Jetty design

The location of FSRU will be as far away as 80 km from the port, which makes it difficult for tugboats to be

deployed for quick rescue should the FSRU has to leave the jetty in an emergency. Therefore, the study team

assumes the design based on the cross-jetty system.

c. Size of pipelines

From the viewpoint of minimizing the initial cost, and from the required capability of the gas transportation, it is

suggested that 24 inches pipeline size needs to be set.

3. Project Cost

The total investment cost is about US$624 million, and the annual running cost about US$24.0 million.

Table Summary-2: Initial Cost of the Project


4. Financial and Economic Evaluation

a. Preconditions of financial analysis

The following table shows the preconditions set for the project.

Cost Foreign Currency Local Currency

($1 million) ($1 million) （1 million Kyat）

Construction/Equipment Cost Total 514 460 52,503

FSRU 278 264 13,622

Jetty 82 57 23,936

Pipeline (offshore) 154 138 14,945

Consulting Cost 15 12 3,748

Interest in construction period

and handling fee69

Tax for capex 25

Initial cost total 624

Expense Items

Table Summary-3: Financial Analysis Preconditions

Project period 25 years

Research/Construction period 5 years

Operating period 20 years

Regasification capacity 360 mmscfd

Profit Charter FSRU, Jetty, and offshore pipeline (including fuel cost of FSRU

operation of USD 10.8 million per year: assumed LNG unit price:

approx. $14/mmbtu): $135 million/year

Initial cost 624MMUSD

Operating cost 24.0 MMUSD /year

Capital ration 25%

Interest rate on borrowing Initial rate 10% (incl. handling fee), 3% during the loan period

Payback period of borrowing 18 years from date of draw down

Depreciation period FSRU, jetty: 20 years, Pipeline: 10 years

(Straight-line depreciation for both. Salvage value after the closure of the

business is not estimated).

Corporate tax rate 25%

Commercial tax 5%

Custom duties 0.5%

Hurdle rate of FIRR 10% (Long-term interest rate in Myanmar as of October 2012)

Sensitivity analysis Case1: The location of the FSRU is 100 km offshore (80 km for the base

case)

Case2: The operational period is 10 years.:

Sources: Created by the research team

The following table shows profitability of the project.

Table Summary-4: Result of Calculation of Performance Indicators

NPV（discount rate 12%） 132MMUSD

B/C (discount rate 12%) 165%

IRR 11.5%

(Long-term interest in Myanmar 10%)

Case1: IRR_offshore100km 10.5%

Case2: IRR_operation period is 10

years

6.9%


Based on the result above, it is estimated that the project has good financial viability even if the FSRU is

constructed 100km offshore, with a higher rate than the long-term interest of 10% in Myanmar.

If the duration of operations is cut by 50% to 10 years with the chartering cost unchanged, IRR will remain at

6.9%.

b. Economic Evaluation

The advantage that the implementation of the project could bring to the economy of Myanmar is the financial

effect delivered through increased electricity supply and avoidance of power outage. To calculate the economic

effect of the project, it is necessary to evaluate the difference by comparing the effect of the project with a

baseline case, where the project does not take place. This study made a rather conservative assumption that in the

case where the project did not materialize, the hydropower generation plants would be developed instead,

generating the equivalent amount of electricity per year. However, Myanmar has a dry season for 3 months, and

therefore it was also presumed that there will be rolling power cuts caused by electricity shortage, deriving from

the inability of hydropower generation especially in the last half of the dry season. The difference in economic

effect between the baseline case and the case the project is implemented can be the difference created by avoiding

power failures during the dry season, as well as the difference between the construction and operational costs of

hydropower plants and the operational costs of gas-fired power plants.

Capex and opex of new onshore pipelines that MOGE may build and own are assumed to be covered by MOGE,

not by the project.

c. Evaluation of economic feasibility

The preconditions for economic analysis are as below.

Table Summary-5: Preconditions for Economic Analysis

Project period 25 years

Research/Construction period 5 years

Operation period 20 years

Regasification capacity 360 mmscfd

Profit Reduction of the cost of power cut in last half of the dry season (1.5

months) (Power shortage amount in the dry season1,555

GWh×$1/kWh1)-（New land gas pipeline costs +operational costs of

gas-fired power plant – construction/operational costs of a

hydropower plant）

Initial cost 624 MMUSD

Operational cost 24.0 MMUSD/ year

Hurdle rate of FIRR 12% (Average figure of opportunity cost in developing countries2)

Sensitivity analysis Case1: The location of the FSRU is 100 km offshore (80 km for the

base case)

Case2: The operational period is 10 years.


To estimate the volume of power shortage during the dry season, the expected output of gas-fired power plants is

calculated based on the below assumptions;

(i) the electricity volume generated from 360mmscd of gas with a generating efficiency of 40% for 18 hours per

day excluding off- peak season for 1.5 months (46 days)

(ii) transmission loss (21%)1

The operational cost of a gas-fired power plant (excluding fuel costs), construction/operational costs of

hydropower plant are adopted from the average operational cost in China (gas fired: 10.88/kWh, hydropower:

$36/kWh) in the “Projected Costs of Generating Electricity 2010 Edition” by the OECD. For the fuel cost of a

gas-fired power plant, this study team applied the price deducing $0.5/mmbtu (=equivalent of the transport cost

between Myanmar and Japan, assuming it will be transported from the Middle East,) from Japanese LNG prices

described in the “New Policies Scenario” in the IEA’s “World Energy Outlook 2012”. The price is drifting at

$14/mmbtu during the operational period.

1Source: FY 2011 Infrastructure System Export Promotion Investigations (Project formation of yen loan/private

infrastructure investigations), Study on the substation rehabilitation project in Yangon, the Republic of the Union of

Myanmar (November, 2012) 2 Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations, ADB (2006)

The profitability of the project is as below.

Table Summary-6: Result of Calculation of Performance Indicator

NPV（discount rate 12%） 632MMUSD

B/C (discount rate 12%) 504%

IRR 28.0%

（opportunity cost for developing country 12%）

Case1: IRR_100 km

offshore

26.2%

Case2: IRR_Operational

period is 10 years

26.6%


As shown in the above table, the result exceeds a 12% opportunity cost under the both cases where we assume

FSRU is located 100km offshore or project period of 10 years. However, the calculation of the above performance

indicators are based mainly on various assumptions, as including matters and elements outside the scope of the

study and therefore contains some uncertainties in its result, It is necessary to conduct further detailed study in the

future.

5. Analysis of Environmental/ Social Aspects

(1) Analysis of Environmental/ Social Aspects

Except for some items in which relevant permits are needed in the future as Myanmar is now under the process

to making relevant laws and regulations, most check items were not applicable for this project, or its effect is

expected to be relatively small.

(4) Project Implementation Schedule

1. Preconditions for project implementation

For the successful completion of the project, the following preconditions need to be decided by the relevant

companies/entities or by the discussion among them.

The determination of these preconditions will expedite the project.

• Appointment for the responsible entity of the project, and the main body of the counterpart governments for

charter ship contract

• Decisions of basic conditions of fuel gas procurement (quantity/gas components etc.)

• Decision of gas delivery point

Change of the gas delivery point influences on the whole project design of gas pipeline including project

schedule, etc.

• Policy on fund sourcing

Development of appropriate financing plan related FSRU / pipeline introduction, the LNG purchase.

• Schedule of legislation for Environmental Impact Assessment (“EIA”)

Affected by preparation of the EIA process and progress of parliamentary approval

2. Project Schedule (Proposed)

From basic development plan to gas delivery, the project is composed of three stages:

1. From making basic development plan to final investment decision (FID)

2. From FID to installation of FSRU, jetty facilities and pipelines

3. Connecting the facilities to the existing gas pipeline network

The schedule in this study is made based on the assumptions that the above preconditions have been appropriately

satisfied at each stage, and that the schedule of one stage does not influence on that of other stages each other.

Figure Summary-2: Detailed Schedule for Project Implementation


Followings are the estimated duration in the main tasks:

• Basic Plan: 3 months

• Basic Design/Ministries approval: 12 months

• Detailed Design: 6 months (part of this work can begin earlier)

• FSRU: LNG reception can begin 33 months after order placement

• Jetty Facilities: complete in 31 months after order placement, in 23 months after the start of construction

• Setting up of Pipeline and Valve Station: complete in 30 months after order placement

LINE DESCRIPTION

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60

1

2 Basic planning

3

4 Basic plan

5 Basic design

6 Comfirmation of project base

7 Collect additional data and survey marine data

8 Write EIA report

9 Environmental approval received work10 Inquiry plan

11 Inquiry・Select sub-constructor12

13 14 Detailed design 15 16 Final Investment Decision17

18 Order sub-constructor 19 20 Lower side of jetty21 Contract

22 Detailed design・Construction design

23 Site work

24

25 ipper side of jetty26 Detailed design

27 Equipment purchase

28 Equipment carried

29 Installation and piping, electrical

30 and instrumentation work

31 Offshore Pipeline Contract

32 Material purchase /on-site installation

33

34 FSRU35 Contract

36 basic design

37 detailed design

38 Production design

39 Construction and manufacturing

40 Transport and installation to the site

41 Preparation for operation

42

42 Whole system inspection43 Ready　For　LNG　Receiving

Main MilestoneBasic

planning

Complete

of basic

design

Start of the

ProjectStart of the

Construction

LNG

Receiving

(5) Feasibility to Implement the Project

FSRU business has been implemented in several countries with the good track records of bankable finance

scheme.. Such project will become feasible when reliable equipment, operation, funding, etc. are provided by

experienced parties through the cooperation of the host country’s government.

Considering the roles of related ministries and agencies as well as implementation capabilities needed for this

project, it is suggested that the MOEP/ MEPE/ YESB and the MOE/ MOGE need to collaborate each other.

However, based on the fact that the MOEP requires immediate import of LNG to overcome the domestic energy

shortages mainly due to the rapid increase of electricity consumption, it would be beneficial to unify the business

contact window of the government, to promote this project quickly. Currently, since the LNG import is mainly for

gas-fired power plant, it is suggested MOEP should be the primal contact window for project

participants/stakeholders.

Although the MOEP has appointed the YESB as the managing body of a public bidding for LNG import, it would

be very challenging for YESB because it is an unprecedented project in Myanmar, thus YESB does not have any

past experiences. This may become one of the obstacles for companies to enter into this market. In addition,

inadequacy of transmission and the distribution network also will be an obstacle in electricity supply, which

generates another risk to newcomers. Therefore, to enhance the feasibility of the project, well-organized

development plan and project management for not only power generation plants but also transmission/distribution

grid expansion are critical.

Considering the abovementioned aspects, new organization under MOEP would be required, whose missions are

to become the supervisory agency for firepower sector and LNG import, to manage this project and relevant

agencies such as the transmission sector of the MEPE and YESB. MEPE is an organization with an

implementation capability and robust operating competency for the plan. Furthermore the firepower sector of the

MEPE has signed a memorandum of understanding about the gas-fired power generation plan with South Korean

and Chinese companies, so it would be suitable for MEPE supervisees the IPP players’ power plant developing

plans. So, MOEP can control the power generation plan by supervising the MEPE to the implementation of the

IPP business as planned.

This study suggests that the MEPE should be the purchaser of the LNG, which has the contract directly with LNG

supplier because of the two main reasons. First, MEPE is already the purchaser for domestically produced natural

gas to fuel gas-fired power plants. Therefore, MEPE would be able to play the role in adjusting domestic demand

and supply gap for the consumption of gas-fired power plants. Second, sole entity to purchase the natural gas from

overseas can be expected to have a bargaining power to acquire the lower LNG price, contributing to supply

cheaper electricity price to consumers.

About the chartered ship to the FSRU and also the pipeline transportation service, the MEPE would favorably be a

contract entity, in terms of consistency of the contract, as well as the unification of the business access posts.

Furthermore, capacity building would be necessary for the MOEP/MEPE, to manage and supervise IPP players,

realize the electric power development as planned, and enable the operators to carry on business in a stable

manner because the delay of the construction and/or the critical problems of the operation would adversely affect

the FSRU project as well.

In addition, for the success of the power plant development, financial assistance would be vital. Especially, it is

necessary to complement the revenue shortages for purchasing gas, in order to make it cover costs. Financial

enhancement by the government guarantee, secured by the MOF, is needed.

Lastly, to involvement of the MOE/MOGE, would be important because of their expertise of the development,

and provision of on-shore pipeline to support the MOEP/MEPE. Though this project assumes that the imported

LNG is utilized only for gas-fired power plant, LNG would be supplied to other consumers such as petrochemical

industry in the future. Considering this, MOE/MOGE should be involved at the early stage of this project to

understand the logistics of imported gas and to get the know-how to handle the gas, because the role of these

entities will be very important to distribute natural gas to such different users in the future.

Based on the above, the chart below shows the suggestion of role sharing in the LNG import & transport project

Figure Summary-3: The Suggestion of Role Sharing in the LNG Import & Transport Project

Source: Prepared by Study Team

(6) Potential Business Scheme

There will be two ways for how to cover the costs: owning the FSRU and the pipeline on its own, or chartering

FSRU from the owner of the FSRU and requesting wheeling through the pipeline.

The advantage of the owning FSRU is that the possessor can fully customize and upgrade the specifications

during the period of operation as per the requirement of the terminal. This allows for the configuration flexibility

with respect to regasification capacity, layout, shore integration and any future enhancements. While this case has

the disadvantage in increased work burden including higher initial investment, and all ship management tasks to

be conducted by the possessor, such as the arrangement and administration of crew. Based on the above study,

this project adopts the charter scheme, which holds down initial investment for the counterpart in the case of

FSRU, and has low work burden to the counterpart when initially installing FSRU.

On the other hand, as to the land pipeline, it will be effective to construct a state-run grid because in most cases,

grids are not built by private companies for their inherent purposes, but are built as national common-use

infrastructure in nature, when building pipelines in terms of responding to wide-ranging gas demand not only for

this electricity generating purposes, but also for commercial use except electricity generation in the medium and

long run.

In addition, it will be desirable for private operators and the entire economy in Myanmar for MOGE with a track

record of construction and operation to own a pipeline for constructing and operating it, though the initial costs

are higher, considering that the compulsory purchase of land will become an issue for private operators in building

pipelines. MOGE will be incentivized with increased profit through wheeling and an increase in the utility value

of the entired related infrastructure, with the extended pipeline networks and capacity.

Regarding offshore pipelines, which are different from land pipelines in nature, it is difficult to plan their

diversification and development except their main purpose, and existing sea pipelines were commissioned to

foreign private companies. Considering that MOGE has no experience of constructing them, it will be desirable

for the counterpart to use wheeling in view of the work and initial investment burdens, as in the case of FSRU.

A unit of SPC in which Japanese companies invest is considered to own, maintain, and operate FSRU and

offshore pipeline and lease the facility to charterer. The FSRU receives LNG from tankers, regasify the LNG and

transports gas to such points of delivery as designated by charterer.

Our team assumed the buyer of gas from an LNG portfolio supplier will be MEPE as mentioned before, which has

operated gas-fired power plants, in addition to procuring gas domestically.

Based on the above, the table below shows a plan of introduced equipment and player make-up, assumed by this

study team.

Figure Summary-4: Introduced Equipment and Player Make-up (Planned)


Regarding financing, it is necessary for FSRUs, the pipeline and the SPC to secure funds as the initial investment

for the project. The SPC is assumed to raise funds from Japanese financial institutions, including Export Credit

Agencies and commercial banks, as well as investment from Japanese and foreign companies.

In addition, it is assumed that MEPE as the off-taker or its upper organization MOEP will supply equity in the

SPC because such financing may help enhance the prospect for realizing this business from the viewpoints of

easing the investment burden and risk that foreign companies may face, as well as lowering the risk bar for the off

taker arising out of cancelation of the project. However, generally speaking, under this arrangement, conflict may

occur about how to handle the assets for liquidation after the project is over, or the realistic and best structure in

terms of tax cannot be made because of government involvement. (For instance, there may be restrictions which

do not allow establishment of an SPC in low-tax countries like Singapore, making the requirement that it must be

a Myanmarese corporation possible.) Also, quick decision-making can be compromised by governmental

influence over operating the SPC. The above can be disadvantageous to this arrangement. As after all, this is only

one option of schemes. Therefore, it is necessary first to judge whether MOEP intends to invest in this project or

not, from the viewpoint of acquiring technology/know-how for similar projects in the future. If so, it will be

necessary to investigate the ratio of ownership, roles, rights, obligations, etc., of each parties. If MOEP invests in

the SPC, utilizing the back finance of the funds by ODA to secure financing, will be useful bringing down the

initial costs of the Myanmar side, and in reducing the risk of investors (a risk of investment shortage).

Furthermore, it is necessary to study how to procure LNG and finance FSRU chartering. It will be desirable to

enter a contract with MEPE in consideration of integrating the contacts for actual work of procuring LNG,

chartering FSRU, and pipeline wheeling.

MEPE will be able to reduce the initial investment in equipment and facilities related to receiving LNG, by

chartering FSRUs under the scheme that was proposed by this study. Also, as the imported LNG through this

project will be eventually used for generating electricity, fees for use of FSRU and the pipeline should be paid

basically by government subsidies. However, given that it is not easy to raise electricity rates due to objection

among the population, and that government finances are tight, there is a possibility that this project cannot secure

enough profits to be viable only with additional funds from the Myanmar side (a possible gap between costs and

profits). Viability gap funding, as a measure to help fill the gaps, the back financing of this fund by ODAs can be

utilized.

With the above issues sorted out, the table below shows a project scheme

Figure Summary-5: Project Scheme (Proposed)


(7) Technical and Economic Advantage of Japanese Companies

a. Provision of highly reliable long-term operation services for the FSRU

Since the contract period of providing FSRU chartering and operation services persists over a long period of time,

ranging from a few years to 20 years, stability and reliability of operator are essential elements required to provide

constant services during the contract period.

As the world’s largest LNG carrier, Mitsui O.S.K. Lines has established top-level know-how of LNG transport,

handling technologies and vessel management know-how all essential for the operation of the FSRU.

While there are currently only a few companies that enjoy a track record of offering operation services of

regasification through FSRU on a global basis, Mitsui O.S.K. Lines has accumulated unique know-how on FSRU

since participating jointly in the shipboard LNG regasification project on the east coast of North America

(“Neptune project”) with a partner shipping company in Norway from 2006, and independently signed a

long-term charter party for FSRU with a subsidiary of GDF Suez S.A., a French company, in October 2013, to

make a full-scale entry into the FSRU business. Among FSRU operators, Mitsui O.S.K. Lines has more stable

financial foundation compared with other providers, and high reliability in provision of long-term services.

b. Support in fund securing

To materialize the project, funding arrangement to pay costs for implementation of the FSRU, jetties and pipelines

is necessary, and it is essential to realize investment and lending to the planned SPC.

SMBC, a Japanese financial institution, has a strong track record in LNG-related project finance including FSRU,

and may possibly take part in this business as a financial advisory, or in the form of lending.

Having a record of participation to the investment in two LNG ships with shipboard regasifiers (FSRU)

(investment ratio: 48.5%) in the Neptune project described above, Mitsui O.S.K. Lines might have strong interest

of investment for the project.

In addition, advantage of Japanese companies includes a possibility of securing ODA loan by Japanese

government, and the Japanese export credit agencies.

Such experience enables the company to offer services for the entire LNG value chain that includes financing.

(8) Maps, which shows the site for the project in the country surveyed

Figure Summary-6: Proposed Site for FSRU and Pipeline Routes


Figure Summary-7: Details of Proposed Pipeline Routes


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