Myanmar’s Challenge: Aligning Private Investment with the Public Interest

By George Abonyi

Street in Yangon, Myanmar. Source: BRJ INC's flickr photostream, used under a creative commons license.

Street in Yangon, Myanmar. Source: BRJ INC’s flickr photostream, used under a creative commons license.

Myanmar requires large-scale infrastructure investments in power generation, transportation, special economic zones, and resource development, as well as other supporting infrastructure, to realize its long-term growth and development. Such mega-projects typically have high costs, take years to develop and build, involve many stakeholders, and carry significant long-term impacts. Given the limits on government resources, financing will have to come mostly from the private sector, particularly through public-private partnerships (PPP).

The challenge for Myanmar with regards to PPP is threefold: to attract sufficient private investment, to ensure that there is institutional capacity to implement PPP, and to make sure that private investment serves the public interest.

The third challenge, in particular, requires significant attention, as it has important implications for shaping the country’s future development. In meeting Myanmar’s massive needs for infrastructure and resource development, PPP initiatives should be undertaken within the broader framework of public investment management.

Creating a supportive environment for private investment

Myanmar has taken important steps toward creating an environment conducive to private investment. The government has unified the exchange rate and liberalized the foreign exchange market, and passed a new Foreign Investment Law and Myanmar Citizen Investment Law, with plans to merge the two. It has also introduced an “open tender” system for public procurement, opened the financial sector to foreign banks, and drafted a new Special Economic Zone Law that will help investors overcome infrastructure bottlenecks. These reforms have contributed to a surge in foreign direct investment (FDI), particularly in telecommunications, and oil and gas.

Private participation in infrastructure is intended to provide new options for public service delivery, given government budget constraints; and to introduce private sector efficiency and innovation in the provision of what have traditionally been public services. In practice, many infrastructure projects are unlikely to be viable on a purely commercial basis, either because of their inability to generate reliable and sustained cash flows or political and institutional risks and uncertainty. Projects that may bring high economic dividends but marginal financial returns are good for the economy but may not be attractive to private investors. This is where public-private cooperation comes into play.

Implementing PPP

Like elsewhere in Asia, Myanmar’s government is looking to (PPP) to better mobilize private investment. Effective implementation of PPP requires the right enabling conditions, including a suitable legal framework and a favorable political environment. It also requires significant institutional capacity, and more fundamentally, a paradigm shift within government agencies from traditionally planning and carrying out projects to partnering with the private sector.

The basic challenge is structuring “bankable” projects so they meet public service delivery objectives and generate acceptable returns to private investors. Through PPP, the government can transfer key project risks, such as those related to construction and operations, to the private sector. However, the ability to structure PPP projects with appropriate risk transfer to the private sector is fundamental to obtaining the full benefits of private participation.

Myanmar’s government understands the need for a coherent national PPP framework and related institutional capacity. However, individual ministries, states, and regions are pursuing PPP initiatives with potential private partners on an ad hoc basis, while investors have proposed a wide range of projects of varying quality and relevance. To this end, the Asian Development Bank is providing assistance, with particular focus on PPP in the power sector, and the World Bank is helping Myanmar strengthen public financial management.

Aligning private investment with the public interest

There is a risk that even with a well-defined national PPP framework, mega-projects may not always align with the public interest. Many countries manage PPP projects separately from the public investment process, potentially leading to macroeconomic vulnerabilities, project-level risks, and weakening public financial management.

All forms of PPP commit societal resources to a varying extent, in the process creating or foreclosing future development possibilities. For example, the Kyaukphyu Special Economic Zone in western Myanmar envisages a deep-water port, terminals for gas and oil pipelines, and an industrial estate. The Confluence Region Hydropower Project in northern Myanmar plans to develop a total installed capacity of around 20,000 megawatts, and the Hanthawaddy International Airport will cover close to 10,000 acres and handle 12 million passengers per year. Such mega-projects have very uneven track records, whether undertaken by the government, private sector, or through public-private partnerships. They tend to be “over budget, over time, over and over again,” in the words of expert on mega-project management Bent Flyvbjerg, and pose the danger of socializing risk while privatizing returns.

Therefore, PPPs should be approached within a broad framework for public investment management. Governments need to clearly identify options, and weigh the benefits of private participation against the real costs to the economy and society. This will help avoid a potential bias in favor of PPPs simply because they involve private finance or generate revenues for the government under some circumstances.

A well thought-out integrated public investment management framework will allow for:

  • Vertical coordination: linking investments “up” to policy priorities, and “down” in terms of annual budget allocations, within a multi-year budgeting framework
  • Horizontal coordination: identifying tradeoffs and ensuring consistency and coordination among diverse investment projects, including in different sectors, and
  • Good quality projects: strengthening effectiveness and efficiency in project selection, design, and management, particularly for mega-projects .

Governments often shoulder certain project risks in PPP arrangements to allow for private participation. These can represent significant potential hidden costs or what are termed as contingent liabilities down the road, such as when the government guarantees to pay investors if use of a toll road falls below a mutually agreed threshold or actual power use falls short of projected demand in take-or-pay agreements. These risks may take a toll on public resources well into the future and should be explicitly reflected upfront.

An integrated public investment management framework for Myanmar is necessary for facilitating successful private participation in PPP. It will subject proposed PPP initiatives to more rigorous public scrutiny; ensure they use societal resources in ways consistent with the country’s long-term development priorities; increase social returns from mega-projects by strengthening the quality and efficiency of individual projects, and the overall portfolio of public investment; and account more accurately for public resource commitments. The time for putting in place such a framework is now, before significant commitments are locked in to a range of mega-projects that may prove difficult to reverse.

Dr. George Abonyi, based in Ottawa, Canada, is visiting professor in the Department of Public Administration and International Affairs, and senior advisor in the Executive Education Program, Maxwell School, Syracuse University. He served as senior advisor to Myanmar’s Ministry of National Planning and Economic Development 2013 – 2015. He can be reached


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