Updated: Jan 26
Electric Power Generation Enterprise (EPGE) of Myanmar’s Ministry of Electricity and Energy (MOEE) launched a public tender for the construction and operation of ground-mounted solar power plant projects at 30 sites totaling 1,060 MW (the “Solar Tender”) on 18 May 2020. The submission of proposals closed on 17 July 2020. According to public information available, about 155 proposals have been submitted.
Following the bid awards on 9 September 2020, the Solar Tender once again drew foreign investors’ attention due to critical aspects throughout the tender process, inter alia:
Short Time Frame
The Solar Tender was launched in May during the first wave of the COVID-19 pandemic and a travel ban was in place while bidders were given only two months to prepare the tender documents. Due to the travel restrictions, the time frame proved quite challenging for foreign investors to identify which approved site(s) they would select for their project.
In addition, the timeline stated in the draft power purchase agreement (PPA) also places challenges (both from operational and project financing perspectives) due to the requirement on project companies to commence commercial operation within 180 days from issuance of the letter of acceptance. As a result, traditional project financing may not be accessible to some foreign investors.
Biggest Winners―Chinese Companies
It was reported that a majority of participants in the Solar Tender are Chinese companies (jointly with their local partners). We understand that the top two winners were awarded eight and nine of the 30 projects, respectively.
Some studies by NGOs reveal that the outcome may be driven by two factors: (i) solar projects are oversupplied in China’s domestic market; and (ii) immediate attention of the Chinese government to make a fast-track entry to Myanmar available for personnel on crucial posts of electricity and infrastructure, oil and gas projects in mid-June.
Unexpected Low Tariff
It was reported that the quoted tariffs range from U.S. 3.48 cents per kWh to U.S. 5.1 cents, which was far below the Myanmar average tariff. This may also be explained by the discussion above to a certain extent.
Possible Issues Following the Awards
Post award activities that bid winners have to conduct include the following:
Securing the letter of acceptance (before execution of the PPA);
Negotiation with MOEE on the PPA;
Incorporation of the project company and application for necessary permits for carrying out solar projects (e.g., MIC permit, construction permit, import and export license, etc.);
Execution of land lease agreement upon issuance of the MIC permit;
Preparation of environmental and social impact assessment; and
Finalizing financing arrangement.
Given the outbreak of second wave of COVID-19, Myanmar has imposed lockdown measures and travel restrictions throughout of the country, which likewise place challenges on completing the required activities above. It was reported that MOEE has started negotiations on the PPA with bidders and MOEE is in the process of issuing the letters of acceptance to the successful parties.
Government Guarantee Under the Draft PPA
We note that a provision for termination payments has been captured in the draft PPA, but the investors will need to heavily negotiate for certain additional protections in the PPA. In particular, in our view the take-or-pay clause will be one of the key provisions to be negotiated. This essentially is an agreement between the contracting parties that the offtaker will either “take” power produced or “pay” for the power produced if it is not required. Such provision guarantees the power producer a predetermined amount of revenue on the condition that the power producer makes the power available to the offtaker under the PPA.
From a financing perspective, take-or-pay provisions are critical for obtaining project financing as well. Hence, it is essential for the investors to ensure an adequate take-or-pay provision in the PPA.
As to government guarantees, the Project Bank Notification (Office of the President Notification No. 2/2018) does mention certain government guarantees for PPP projects selected via a competitive tender process, but as far as we are aware, the current Solar Tender does not include the provision of any government guarantee.
Considering the current situation, it is strongly recommended that investors bear the respective timelines in mind, have constant conversations with MOEE for any particular issues and comply with the local law requirements in relation to contractual and operational matters.
For further information, please contact:
Priyank Srivastava, Duane Morris & Selvam LLP