U Thein Win Zaw, Chairman, Shwe Byain Phyu: Interview

Interview: U Thein Win Zaw

How will the participation of foreign companies and investors affect the distribution and sale of petroleum products in the domestic market?

U THEIN WIN ZAW: The sector has undergone some important changes in the last decade. In 2010 the government privatised the ownership of petrol stations, with Myanma Petroleum Products Enterprise (MPPE) transferring its 216 gas stations to private firms from across the country. In 2016 the state allowed foreign companies to import and sell petroleum products in Myanmar. Puma was one of the first of these to seize the opportunity by entering into an agreement with MMPE to import and retail jet fuel.

In general, foreign companies have an important comparative advantage over local firms when it comes to accessing capital and credit: they are able to get support from international banks and have greater access to financial resources at much lower interest rates than local firms.

In contrast, the latter might have a comparative advantage when it comes to fixed costs. For instance, a foreign firm would have a much larger cost structure because it has to pay higher wages than local companies. Higher costs are therefore transferred to the customer through higher fuel prices. In a very price-sensitive market such as Myanmar, foreign companies can face some difficulties, and that probably explains why there are none present in the retail market. Foreign firms have a fixed profit margin percentage, which their local counterparts cannot afford to have, making them very dependent on oil price fluctuations, for which there is always a margin of 10 to 20 kyat. The challenge is even greater owing to growing competition in the retail of petroleum products and lack of adequate storage facilities, which means that local firms often have to sell imported fuel at a loss.

Looking ahead, we can expect a growing interest from foreign players in entering Myanmar’s mid and downstream sectors, bringing with them the capital and the technology the industry needs to modernise.

In what ways do you think economic liberalisation and the increase in vehicle sales will affect demand for petroleum products?

THEIN WIN ZAW: Since the privatisation of the retail market, demand for gasoline has increased quite rapidly, with some estimations pointing to an 18.9% compound annual growth rate (CAGR) between 2010 and 2016. Due to the characteristics of the local vehicle market, demand for 92 RON petrol has increased exponentially and, according to the Myanmar Energy Master Plan, petrol sales are projected to record a CAGR of 5% for the 2017-2030 period.

To understand how the market has changed, one only needs to realise that in 2010, annual demand for fuel was 600,000 tonnes and today the country imports around 300,000 tonnes of fuel per month. Greater demand for petrol has attracted a significant number of new players to the fuel retail sector, making it much more competitive. Back in 2010, profit margins were approximately 6-7%. Since 2015, increasing competition from large and small-scale players has brought those margins down to 2%-3%.

How can efficiency and competitiveness in the retail sector be strengthened?

THEIN WIN ZAW: One of the major concerns for the industry is the lack of storage facilities within the country. Enhanced storage capacity would simultaneously improve market conditions for the development of a more competitive mid and downstream industry, and provide a first shield for against the volatility of international oil prices.

This would also allow Myanmar to develop an emergency fuel reserve, which would provide a crucial boost to national energy security while working to avoid future crises triggered by fuel shortages.