Myanmar and ADB

4/23/2018

Myanmar and ADB | Asian Development Bank



  Myanmar 

Myanmar and ADB In the Spotlight

Emerging from decades of economic and political isolation, Myanmar is striving for inclusive economic growth and poverty reduction. The country has strong potential for broad economic expansion, possessing abundant natural resources, a strategic location at the crossroads of Asia, a young population, and a sizable market with wide-ranging investment opportunities. Successful national elections, held in November 2015, represented an important milestone in Myanmar’s transition. ADB operations in Myanmar focuses on building human resources and capacity, creating an enabling economic environment, and expanding access and connectivity. Myanmar is a member of the Greater Mekong Subregion (GMS). https://www.adb.org/countries/myanmar/main

1/9

4/23/2018


Read the ADB and Myanmar fact sheet.



Follow us on Twitter @ADB_Myanmar »



Like us on Facebook fb.com/adbmyrm »

Latest News from Country Offices »

All 11 Apr 2018

Continued Reforms Key to Myanmar's Economic Growth Myanmar’s economy is projected to stay on a steady growth path over the next two years, supported by economic reforms, strong global growth, and higher foreign direct investment flows, according to a new ADB report launched today.

https://www.adb.org/countries/myanmar/main

2/9

4/23/2018


News Release »

06 Apr 2018

Publication »

04 Apr 2018

Promoting Green Local Currency Bonds for Infrastructure Development in ASEAN+3 ASEAN+3 policy makers are exploring options to promote green local currency-denominated bonds to meet the region’s infrastructure development needs.

ADB President Affirms Support for Infrastructure Investment, Financial Inclusion at ASEAN Meeting https://www.adb.org/countries/myanmar/main

3/9

4/23/2018


ADB President Takehiko Nakao participated in the 21st Association of Southeast Asian Nations (ASEAN) Finance Ministers’ and Central Bank Governors’ Meetings in Singapore on 5-6 April.

Load more

Projects in Myanmar

View all projects in this country

PROPOSED 50381-006

Greater Mekong Subregion East-West Economic Corridor Highway Development Project 50109-002

Second Mandalay Urban Services Improvement Project 50020-002

Power Network Development Project 50218-002

Rural Roads and Access Project https://www.adb.org/countries/myanmar/main

4/9

4/23/2018


47087-003

Greater Mekong Subregion Highway Modernization Project

APPROVED/ACTIVE 51242-001 (26 Oct 2017)

Resilient Communities Development Project 50109-001 (20 Jul 2017)

Preparing the Second Mandalay Urban Services Improvement Project 50173-001 (31 May 2017)

Support for Strengthening Business Climate 50381-001 (21 Apr 2017)

Greater Mekong Subregion East-West Economic Corridor Highway Development 50403-001 (31 Mar 2017)

Strengthening Climate and Disaster Resilience of Myanmar Communities

CLOSED 48291-001 (30 Sep 2016)

Support for Sanitary and Phytosanitary Arrangements Development 48903-012 (31 Mar 2015)

INTERCONNECTION AND ELECTRIFICATION GRID STUDIES 47227-001 (30 Apr 2017)

Skills Development for Inclusive Growth 47159-001 (31 Dec 2016)

Financial Sector Reforms 47127-001 (30 Jun 2016)

Mandalay City Urban Services Improvement Project https://www.adb.org/countries/myanmar/main

5/9

4/23/2018

Fast Facts


Funding Information

About Tableau Source: Basic Statistics 2017.  View on the Data Library 

Flickr Photostream »


6/9

4/23/2018



7/9

4/23/2018


MYANMAR Main Overview Strategy Economy Poverty in Myanmar Project Results Data Opportunities Publications and Documents Translations in Myanmar Language News and Multimedia Contacts https://www.adb.org/countries/myanmar/main

8/9

4/23/2018


 © 2017 Asian Development Bank.


Sitemap









Terms of Use

9/9

4/23/2018

Asian Development Bank and Myanmar: Fact Sheet | Asian Development Bank



  Publications 

Asian Development Bank and Myanmar: Fact Sheet ADB supports Myanmar in promoting inclusive and sustainable economic growth, with focus on infrastructure, education and training, and agriculture and rural development. ADB commenced reengagement with Myanmar in early 2012. ADB has since been supporting the country’s national development strategies and its national priority programs in collaboration with other development partners. In March 2017, ADB approved its first full country partnership strategy, 2017–2021 for Myanmar. The strategy is fully aligned with Myanmar’s national development agenda and other strategic priorities of the country’s new administration. The ADB program in Myanmar aims to promote sustainable and inclusive economic development, and job creation for poverty reduction. It focuses on infrastructure for transport, energy, and urban development; education and training; and rural development.

 Download Free: 236.41 KB

c b This work is licensed under a Creative Commons Attribution 3.0 IGO License Related More on ADB's work in Myanmar https://www.adb.org/publications/myanmar-fact-sheet

1/2

4/23/2018

ADB-Myanmar Partnership Strategy | Asian Development Bank



  Myanmar 

ADB-Myanmar Partnership Strategy Myanmar is undergoing a historic transformation towards democracy, a market economy, and peace and stability. A new government took office in 2016 with strong popular support and international goodwill, and is working to enable inclusive and sustainable growth. These efforts will leverage Myanmar’s strengths and high development potential, including its strategic location within Asia. ADB has a unique opportunity to support Myanmar in this formative period, as outlined in the country partnership strategy (CPS) for Myanmar, 2017‒2021. While Myanmar has enormous potential, significant development challenges require attention, including: 1. meeting deficits in infrastructure and human capital to boost social and economic development; 2. maintaining macroeconomic and fiscal stability in a challenging global economic environment; and 3. accelerating the reform process to achieve structural and institutional change; enhance the business environment;improve capacities and governance standards; and address environmental issues and climate change. Following reengagement with Myanmar in 2012, ADB implemented an interim CPS; undertook a range of capacity-building initiatives and knowledge work; and made investments in energy, transport, education and training, and urban and rural development. The CPS, 2017‒2021 aims to support the government in laying the foundations for sustainable and inclusive economic development, and job creation for poverty reduction. ADB operations will focus on: 1. improving access and connectivity to connect rural and urban areas and markets, and to link Myanmar with the regional and global marketplace; 2. strengthening human capital to promote a skilled workforce and increased employment, and enable the poor and disadvantaged to benefit from economic growth; and 3. promoting structural and institutional reform to support the modernization of the economy. In implementing these priorities, infrastructure (energy, transport and urban development) will remain the mainstay of ADB operations. https://www.adb.org/countries/myanmar/strategy

1/3

4/23/2018

ADB-Myanmar Partnership Strategy | Asian Development Bank

Latest Country Strategies and Business Plans Myanmar: Country Operations Business Plan (2017-2019) Myanmar: Country Partnership Strategy (2017-2021) GMS Economic Cooperation Program: Regional Investment Framework 2022 VIEW MORE

The Public Communications Policy (PCP) recognizes that transparency and accountability are essential to development effectiveness. It establishes the disclosure requirements for documents and information ADB produces or requires to be produced. The Accountability Mechanism provides a forum where people adversely affected by ADB-assisted projects can voice and seek solutions to their problems and report alleged noncompliance of ADB's operational policies and procedures. In preparing any country program or strategy, financing any project, or by making any designation of, or reference to, a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

MYANMAR Main Overview Strategy Country Planning Documents Economy Poverty in Myanmar Project Results Data Opportunities Publications and Documents Translations in Myanmar Language https://www.adb.org/countries/myanmar/strategy

2/3

4/23/2018

Continued Reforms Key to Myanmar's Economic Growth | Asian Development Bank



  News and Events  News Releases 

Continued Reforms Key to Myanmar's Economic Growth YANGON, MYANMAR (11 April 2018) — Myanmar’s economy is projected to stay on a steady growth path over the next two years, supported by economic reforms, strong global growth, and higher foreign direct investment flows, according to a new Asian Development Bank (ADB) report launched today. “With risks mitigated, Myanmar should be able to stay on a steady economic growth path in the medium-term,” said Newin Sinsiri, ADB Country Director for Myanmar. “Myanmar should be able to leverage limited public resources by effectively engaging development partners, foreign investors, and the domestic private sector to help finance its staggering infrastructure requirements, narrow regional socioeconomic disparities, and support the long-term development agenda. The Asian Development Outlook (ADO) 2018 says Myanmar’s economy will pick up speed just as inflation eased and the current account deficit widened. The report, which is ADB’s flagship annual economic publication, estimates Myanmar’s growth at an annualized rate of 6.8% in the six-month period ending in September 2018 and 7.2% in the full fiscal year ending in September 2019. Agriculture, which provides about 30% of gross domestic product, will grow robustly, with better weather and favorable commodity prices. The industry and service sectors are expected to grow faster over the next two years, thanks to robust manufacturing production buoyant telecommunication services. A risk to the outlook would be lackluster progress in economic reforms. Although measures have been introduced to deepen the capital market and better regulate banks, significant work remains in economic, social, and institutional reforms. Encouragingly, the progress in December 2017 toward enacting a new company law can assure foreign investors that corporate reform will continue. Similarly, a government initiative to formulate a 238-point economic policy agenda, set out in the draft Myanmar Sustainable Development Plan, will likely keep investors engaged. Building on these initiatives, policymakers should implement reforms expeditiously and effectively to buoy investor confidence and attract sizable foreign direct investments in the years to come. ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members—48 from the region. https://www.adb.org/news/continued-reforms-key-myanmars-economic-growth

1/3

4/23/2018

Continued Reforms Key to Myanmar's Economic Growth | Asian Development Bank

Media Contact Zaw, Tin Tun External Relations Officer, Myanmar Resident Mission (MYRM)

 +95 1860 3433-3455, extension 5028  +95 9 5023197  E-mail contact form Churchill, Erik Communications Specialist

 +63 999 999 1905  E-mail contact form

Related Asian Development Outlook (ADO) 2018: How Technology Affects Jobs Infographic: Asian Development Outlook 2018: Growth Outlook Asian Development Outlook (ADO) Series ADB-Myanmar Partnership Strategy Asian Development Bank and Myanmar: Fact Sheet More on ADB's Work in Myanmar

https://www.adb.org/news/continued-reforms-key-myanmars-economic-growth

2/3

Myanmar: Greater Mekong Subregion Highway Modernization Project Project Name

Greater Mekong Subregion Highway Modernization Project

Project Number

47087-003

Country

Myanmar

Project Status

Proposed

Project Type / Modality of Assistance

Loan

Source of Funding / Amount

Loan: Greater Mekong Subregion Highway Modernization Project concessional ordinary capital resources lending / Asian Development Fund ASEAN Infrastructure Fund

US$ 340.00 million US$ 20.00 million

Strategic Agendas

Environmentally sustainable growth Inclusive economic growth Regional integration

Drivers of Change

Governance and capacity development Knowledge solutions Partnerships Private sector development

Sector / Subsector

Transport - Road transport (non-urban)

Gender Equity and Mainstreaming

Some gender elements

Description

The project will rehabilitate and improve about 280 km of highways, improve safety of the Yangon-Mandalay expressway, and finance detailed technical preparation of a new highway project, all along Myanmar's Greater Mekong Subregion (GMS) East-West Economic Corridor (EWEC) and North-South Economic Corridor (NSEC).

Project Rationale and Linkage to Country/Regional Strategy

The project is instrumental to achieving the Country Partnership Strategy's objective to develop the GMS corridors. It supports the strategy's emphasis on transport infrastructure improvements, reforms, and private sector development. The project forms part of a sequence of gradually larger and more value-adding projects in the transport sector in Myanmar.

Impact

All-weather and safe road transport infrastructure developed in order to fulfill social and economic transport needs of the nation (National Transport Sector Development Master Plan)

Outcome

More efficient and safer movement of goods and people along the GMS EWEC and North- South corridor in Myanmar

Outputs

1. Highways rehabilitated 2. Expressway safety improved 3. Detailed technical preparation for GMS EWEC highway development project completed

Geographical Location

Bago, Pathein, Thilawa, Yangon

Safeguard Categories Environment

B

Involuntary Resettlement

A

Indigenous Peoples

C

Summary of Environmental and Social Aspects

Environmental Aspects

The project is categorized as B for environment. It is not anticipated to cause significant adverse environmental impacts. The dominant land use along the project road is agricultural, which is primarily for rice production. The road corridor is not within undisturbed landscapes, mangrove areas, or near environmentally-protected areas. The project will not encroach on environmentally-sensitive sites. The government is preparing IEEs to meet the requirements of ADB's Safeguard Policy Statement (SPS), which will be publicly disclosed. Each IEE will include an Environmental Management Plan (EMP). The EMP is to be incorporated into the project's civil works contract documentation. IEEs will also include a grievance redress mechanism to facilitate resolution of construction-related environmental impacts.


The project is tentatively categorized as B for involuntary resettlement. The project will remain within the right of way, but is expected to impact structures encroaching on the right of way and located in the project's immediate corridor of impact. Resettlement surveys were ongoing in April 2017. Affected households will be consulted and informed about the proposed project, SPS, and proposed assistance due to displacement. The government is preparing resettlement plans, which will be publicly disclosed.

Indigenous Peoples

The project is categorized as C for indigenous peoples.

Stakeholder Communication, Participation, and Consultation During Project Design

Consultation meetings were organized in January 2017 for the preparation of the IEEs. Additional consultation meetings will be organized in April and May 2017 as part of the preparation of the resettlement plans.

During Project Implementation

The Project Management Unit along with its Supervision consultants will conduct stakeholders consultation prior to and during road construction.

Business Opportunities Consulting Services A consulting firm will be recruited for supervision, institutional strengthening and design services, for outputs 1 and 2. A separate consulting firm will be recruited for output 3. Both consultants will be recruited following ADB's Guidelines on the Use of Consultants by Asian Development Bank and Its Borrowers (2013, as amended from time-to-time), using the quality and costs based selection procedure and full technical proposal. Responsible ADB Officer

Veron-Okamoto, Adrien

Responsible ADB Department

Southeast Asia Department

Responsible ADB Division

Transport and Communications Division, SERD

Executing Agencies

Ministry of Construction Department of Highways Office Building No. 11 Naypyitaw, Myanmar

Timetable Concept Clearance

17 Mar 2017

Fact Finding

28 Feb 2017 to 08 Mar 2017

MRM

03 Oct 2017

Approval

-

Last Review Mission

-

Last PDS Update

28 Mar 2018

Project Page

https://www.adb.org/projects/47087-003/main

Request for Information

http://www.adb.org/forms/request-information-form?subject=47087-003

Date Generated

23 April 2018

ADB provides the information contained in this project data sheet (PDS) solely as a resource for its users without any form of assurance. Whilst ADB tries to provide high quality content, the information are provided "as is" without warranty of any kind, either express or implied, including without limitation warranties of merchantability, fitness for a particular purpose, and non-infringement. ADB specifically does not make any warranties or representations as to the accuracy or completeness of any such information.

Myanmar: Power Network Development Project Project Name

Power Network Development Project

Project Number

50020-002

Country

Myanmar

Project Status

Proposed


Loan


Loan: Power Network Development Project concessional ordinary capital resources lending / Asian Development Fund

US$ 298.90 million

Strategic Agendas

Environmentally sustainable growth Inclusive economic growth

Drivers of Change

Private sector development

Sector / Subsector

Energy - Electricity transmission and distribution


No gender elements

Description

The project will construct (i) 16.6 km transmission line between Ahlone and Thida substations with a 230/66/11kV 150 MVA Ahlone substation and 230/66/11kV (3x150 MVA) GIS Thida substation; (ii) 286km Mawlamyine-Ye-Dawei transmission line with 230/66/11kV (2 x 50 MVA) Ye substation and 230/66/11kV (2 x 50 MVA) Dawei substation; and (iii) upgrade and construct 48 new 66/33/11kV substations with 820 km distribution lines in the following states and regions: Aeyawardy, Bago, Mon, Kayin and Rakhine. The project will also install a computerized transmission asset management systems (CAMS) and a computerized customer billing system (CCBS) to improve operational efficiency and reduce losses in the transmission and distribution systems.


The core developmental problem of Myanmar's power sector is insufficient and obsolete transmission and distribution infrastructure and lack of generating capacity to adequately supply electricity to support economic development and poverty reduction. With forecasted high economic growth, Myanmar's electricity demand is expected to rise fivefold from 3070 megawatt (MW) in 2017 to 14500 MW in 2030. The project will contribute to increasing electricity supply to support inclusive and sustainable development, and to achieving the country's plan of universal electricity access by 2030.

Impact

Universal electricity access achieved

Outcome

Capacity and operational efficiency of power transmission and distribution increased

Outputs

3 new 230 kV transmission lines and 5 new substations with capacity of 700 MVA added to Myanmar's power transmission network New distribution facilities added to the distribution systems in Ayeyarwady, Bago, Mon, Rakhine, and Kayin regions New CAMS and CCBS installed


Nation-wide

Safeguard Categories Environment

B


B

Indigenous Peoples

C

Summary of Environmental and Social Aspects

Environmental Aspects

Under the Transmission Component, an environmental impact assessment report with environmental management plan was prepared. These reports were based on the results of site visits, discussions with local authorities and beneficiaries, and the use of secondary sources of information such as similar projects. The assessment provided that expected impacts will occur during the different phases of the project development. The project was initially categorized as A due to the long Mawlamyine-Ye-Dawei transmission line potentially encroaching a biodiversity area. However, the final alignment chosen as a result of due diligence completely avoided all environment sensitive areas, hence, the environment assessment confirmed that the project is not considered as highly complex and sensitive and is now re-categorized as B.


Land acquisition for the project will result in physical and economic displacement. A total of 39 hectares for land (38 hectares for distribution component and 1 hectare for transmission component) will be acquired permanently to be used for tower footings and substations. The project will have an impact on a total of 814 households. Of these, 18 households will be severely affected: nine households will lose their primary residential structures under the transmission component, and the other nine households will lose more than 10% of the total land holdings or income under the distribution component.

Indigenous Peoples

Three of the five states, namely Mon, Kayin and Rakhine have ethnic groups residing in the project area. The project will not acquire lands that are traditionally used by the ethnic groups nor cause any adverse impact on their identity, social, culture, or spiritual importance or interfere with their socio-cultural beliefs and livelihood systems. Ethnic group communities will benefit from project activities through employment opportunities and household electrifications. However, the project also presents minor risks and challenges concerning ethnic groups, particularly in terms of ensuring that ethnic groups are not marginalized during the project implementation with regards to employment opportunities and access to electricity. The project will ensure adequate consultations and a comprehensive project management approach in project areas where there are already ethnic group organizations providing parallel social services and community infrastructure. REGDPs have been developed with the approaches and entries that ensure project design and implementation shall foster full respect of ethnic groups and full respect for all affected households and stakeholders and that the ethnic groups (i) do not suffer adverse impacts as a result of the project, (ii) have equitable access to benefits of the project, and (iii) can participate actively in the project.

Stakeholder Communication, Participation, and Consultation During Project Design

Analyses for the following will be conducted: participation and empowerment; social impacts assessment; employment opportunities; gender issues and Gender Action Plan; ethnic minority issues, if applicable; consultations with project affected peoples, project beneficiaries, stakeholders, civil society organizations to identify issues, propose measures for addressing them through consultations; conduct specific conflictsensitive consultations in all relevant project areas.

During Project Implementation

Continuous consultation and participation process will involve a stakeholder analysis followed by subsequent consultations with various groups. It is planned to conduct consultations at the household and community level, regional and national government officials, development partners, nongovernmental organizations, and commune- and village- level officials and beneficiaries. A series of focus group discussions will be undertaken as part of the socio-economic analysis.

Business Opportunities Consulting Services

The project implementation consultants for transmission and distribution components will be recruited in accordance with ADB's Guidelines on the Use of Consultants (2013, as amended from time to time). An estimated 281 person-months of consulting services will be required for the transmission component and 300 person-months for the distribution component. The consultants will support the project implementation unit in project implementation, monitoring and reporting; and strengthen the institutional and operational capacity of the EA/IAs.

Procurement

All procurement of goods and works, and advance contracting will be undertaken in accordance with ADB's Procurement Guidelines (2015, as amended from time to time). The project involves the procurement of three (3) plant-design, supply and installation and one (1) IT product contract under the transmission component; and seven goods and one (1) IT product contract under the distribution component. International competitive bidding with single-stage one-envelope method will be used for procurement of these contracts. ADB's prior review procedures will be followed. Line installation works, substation installation works, and supply of concrete poles will be undertaken through national competitive bidding using ADB's standard bidding documents for small works. Before the start of any procurement, ADB and the government will review the public procurement laws of the central and state governments to ensure consistency with ADB's Procurement Guidelines (2015, as amended from time to time).

Responsible ADB Officer

Bui, Duy-Thanh




Energy Division, SERD

Executing Agencies

Ministry of Electricity and Energy No. B-07, Yadana Shwe Pyi St., Zaya Theidi Ward, Nay Pyi Taw

Timetable

Concept Clearance

26 Sep 2016

Fact Finding

22 Jan 2018 to 02 Feb 2018

MRM

04 Apr 2018

Approval

-

Last Review Mission

-

Last PDS Update

27 Mar 2018

Project Page




Date Generated

23 April 2018


Myanmar: Preparing the Second Mandalay Urban Services Improvement Project Project Name

Preparing the Second Mandalay Urban Services Improvement Project

Project Number

50109-001

Country

Myanmar

Project Status

Active


Technical Assistance


TA 9345-MYA: Preparing the Second Mandalay Urban Services Improvement Project Technical Assistance Special Fund

US$ 750,000.00

Urban Climate Change Resilience Trust Fund under the Urban Financing Partnership Facility

US$ 225,000.00

Strategic Agendas


Drivers of Change

Governance and capacity development Partnerships

Sector / Subsector

Transport - Urban public transport Water and other urban infrastructure and services - Urban sewerage - Urban solid waste management - Urban water supply


Effective gender mainstreaming

Description Project Rationale and Linkage to Country/Regional Strategy

The proposed project will improve urban environment and public health conditions in Mandalay City through improvement of urban infrastructure and services.

Impact Project Outcome Description of Outcome Progress Toward Outcome Implementation Progress Description of Project Outputs Status of Implementation Progress (Outputs, Activities, and Issues) Geographical Location

Mandalay

Summary of Environmental and Social Aspects Environmental Aspects Involuntary Resettlement Indigenous Peoples Stakeholder Communication, Participation, and Consultation During Project Design During Project Implementation Responsible ADB Officer

Honda, Eri




Urban Development and Water Division, SERD

Executing Agencies

Mandalay Regional Government Corner of 31st Street and 72nd Street Chan Aye Thar San Township Mandalay, Myanmar


-

Fact Finding

-

MRM

-

Approval

20 Jul 2017

Last Review Mission

-

Last PDS Update

27 Mar 2018

TA 9345-MYA Milestones Approval 20 Jul 2017

Signing Date

Closing

Effectivity Date

02 Jan 2018

02 Jan 2018

Original 30 Sep 2019

Financing Plan/TA Utilization ADB

750,000.00

Cofinancing

225,000.00

Total

Beneficiaries

0.00

0.00

-

Actual -

Cumulative Disbursements

Counterpart Gov

Revised

Project Sponsor

Date

Amount

Others 0.00

0.00

975,000.00

20 Jul 2017

Project Page




Date Generated

23 April 2018

0.00


Myanmar: Second Mandalay Urban Services Improvement Project Project Name

Second Mandalay Urban Services Improvement Project

Project Number

50109-002

Country

Myanmar

Project Status

Proposed


Grant Loan

Source of Funding / Amount Strategic Agendas


Drivers of Change


Sector / Subsector

Transport - Urban public transport Water and other urban infrastructure and services - Urban sanitation Urban sewerage - Urban solid waste management - Urban water supply



Description Project Rationale and Linkage to Country/Regional Strategy

The proposed project will improve urban environment and public health conditions in Mandalay City through improvement of urban infrastructure and services.

Impact

Urban environment in Mandalay improved (Economic Policy of the Union of Myanmar) Public health conditions in Mandalay improved (Economic Policy of the Union of Myanmar)

Outcome

Urban services in Mandalay improved

Outputs

Urban infrastructure upgraded Urban service management capacity strengthened

Geographical Location Safeguard Categories Environment

B


B

Indigenous Peoples

C

Summary of Environmental and Social Aspects Environmental Aspects Involuntary Resettlement Indigenous Peoples Stakeholder Communication, Participation, and Consultation During Project Design During Project Implementation Business Opportunities

Consulting Services One package of consulting services with a value of $975,000 will be procured. through firm(s). The TA will require 10 positions and 22 person-months (pm) of international, and 13 positions and 44 pm of national consulting services. The consultants will be engaged through firm(s). The quality- and cost-based selection method with quality-cost ratio of 90:10, using simplified technical proposal procedures, will be followed. The time-based contract will be used. ADB will select and engage the consultant in accordance with the Guidelines on Use (2013, as amended from time to time). The consultants may procure equipment through shopping in accordance with the ADB's Procurement Guidelines (2015, amended from time to time). Upon completion of the TA, equipment procured under the TA will be transferred to the executing agencies. Procurement

The consultants may procure equipment through shopping in accordance with the ADB's Procurement Guidelines (2015, amended from time to time). Upon completion of the TA, equipment procured under the TA will be transferred to the executing agencies


Honda, Eri




Urban Development and Water Division, SERD

Executing Agencies

Mandalay Regional Government Corner of 31st Street and 72nd Street Chan Aye Thar San Township Mandalay, Myanmar


20 Jul 2017

Fact Finding

14 Oct 2018 to 14 Oct 2018

MRM

26 Nov 2018

Approval

-

Last Review Mission

-

Last PDS Update

04 Aug 2017

Project Page




Date Generated

23 April 2018


Myanmar: Support for Strengthening Business Climate Project Name

Support for Strengthening Business Climate

Project Number

50173-001

Country

Myanmar

Project Status

Active




TA 9324-MYA: Support for Strengthening Business Climate Technical Assistance Special Fund

US$ 800,000.00

Strategic Agendas

Inclusive economic growth

Drivers of Change

Governance and capacity development Private sector development

Sector / Subsector

Finance - Finance sector development - Inclusive finance Public sector management - Decentralization - Public administration


No gender elements

Description Project Rationale and Linkage to Country/Regional Strategy Impact

Private sector growth in line with a market economy system enabled

Project Outcome Description of Outcome

Business environment improved

Progress Toward Outcome Implementation Progress Description of Project Outputs

1. Tax administration strengthened 2. Investment approval process rationalized 3. Business access to financial services increased

Status of Implementation Progress (Outputs, Activities, and Issues) Geographical Location

Nation-wide

Summary of Environmental and Social Aspects Environmental Aspects Involuntary Resettlement Indigenous Peoples Stakeholder Communication, Participation, and Consultation During Project Design During Project Implementation TA implementation on track. 3 international experts plus 1 investment policy firm have been engaged. There is an ongoing recruitment for a Tax Data Expert and a National Finance Expert. Business Opportunities

Consulting Services

Consulting services will be delivered by a mix of individuals and a firm. ADB will hire consulting firms, according to its Guidelines on the Use of Consultants. Individual consultants will be recruited using Individual Consultant Selection (ICS). A total of 11 person-months will be allocated to individual international consultants and 23 personmonths to an individual national consultant to act as a project coordinator for all activities under 3 outputs. 9 person-months of consulting inputs will be allocated to one consulting firm and will be split among 3 international experts. Procurement shall be conducted in accordance with ADB's Procurement Guidelines (2015, as amended from time to time). Disbursements under the TA will conform to ADB's Technical Assistance Disbursement Handbook.

Procurement

An amount will be budgeted for the purchase of equipment including 9 computers and office furniture for the new MIC offices and IAD of IRD. Procurement shall be conducted in accordance with ADB's Procurement Guidelines (2015, as amended from time to time). Disbursements under the TA will conform to ADB's Technical Assistance Disbursement Handbook.


Nguyen, Duong T.




Public Management, Financial Sector and Trade Division, SERD

Executing Agencies

Ministry of Planning and Finance Building No 26. Nay Pyi Taw Republic of the Union of Myanmar


01 Mar 2017

Fact Finding

30 Jan 2017 to 03 Feb 2017

MRM

-

Approval

31 May 2017

Last Review Mission

-

Last PDS Update

28 Mar 2018

TA 9324-MYA Milestones Approval

Signing Date

31 May 2017

07 Aug 2017

Closing

Effectivity Date

Original

07 Aug 2017

31 Jul 2020


Cofinancing

800,000.00

0.00

Total

Beneficiaries

0.00

0.00

-

Actual -


Counterpart Gov

Revised

Project Sponsor

Date

Amount

Others 0.00

0.00

800,000.00

31 May 2017

Project Page




Date Generated

23 April 2018

72,428.12


Myanmar: Rural Roads and Access Project Project Name

Rural Roads and Access Project

Project Number

50218-002

Country

Myanmar

Project Status

Proposed


Loan


Loan: Rural Roads and Accessibility concessional ordinary capital resources lending / Asian Development Fund

US$ 60.00 million

Strategic Agendas


Drivers of Change

Governance and capacity development Knowledge solutions

Sector / Subsector




Description

The Government of the Republic of the Union of Myanmar has approached the Asian Development Bank (ADB) for support to develop and contribute to the financing of a national rural roads and access program. The project will improve about 350 km of rural roads in two pilot regions, Ayeyarwaddy and Sagaing, and develop the technical bases and capacity for the program. The project outcome is improved accessibility of rural people, by way of launching a nationwide rural roads and access program, a part of which ADB will finance.


It was estimated that 20 million people in Myanmar live in villages without access to an all-season road, which is over half of Myanmar's rural population. In 2015, ADB carried out a first-ever study of rural access in Myanmar. The study found that nine million people live in one of the 25,000 villages that are not connected by any road. Without a road, people have to walk, bike along narrow paths; they carry goods themselves or on the back of animals. Another 20,000 villages with an estimated 11 million people are connected by a road that is not all-season. These people may be able to use vehicles to reach the nearest township, but the link is likely to become impassable during the rainy season. Myanmar's rural access problem appears very severe by international standards. Myanmar's Rural Access Index (RAI) is estimated at 36%, which is the lowest in Asia. While Myanmar has about 75,000 km of all-season roads, it would need a 250,000 km road network to connect all villages. Investments have long been below needs, while efficiency of spending has remained limited by an absence of clear goals and prioritization criteria, and a fragmented institutional setting. Rural road construction and maintenance have also been of low quality, being insufficiently professionalized. The government proposes to establish a national rural roads and access strategy and program to mobilize effectively larger resources to the task, improve governance and raise quality, inspired from good international examples. The project is aligned with the government's vision of providing rural road access to all villages by 2030.

Impact

Rural road access to all villages provided.

Outcome

Accessibility of rural population in the Ayeyarwaddy and Sagaing regions improved.

Outputs

Rural roads and access improved Rural road management improved

Geographical Location Safeguard Categories Environment

B


B

Indigenous Peoples

B

Summary of Environmental and Social Aspects Environmental Aspects Involuntary Resettlement Indigenous Peoples Stakeholder Communication, Participation, and Consultation During Project Design During Project Implementation Business Opportunities Consulting Services Consultants will be recruited through quality- and cost-based selection for project management, construction supervision services and design, in accordance with ADB's Guidelines on the Use of Consultants (2013, as amended from time to time). Procurement

Based on the small size of each works package, civil works will be procured through national competitive bidding and shopping in accordance with ADB's Procurement Guidelines (2015, as amended from time to time).


Veron-Okamoto, Adrien





Executing Agencies

Ministry of Agriculture, Livestock and Irrigation Office Bldg No. 15, Nay Pyi Taw, Myanmar


29 Sep 2016

Fact Finding

18 Feb 2018 to 28 Feb 2018

MRM

15 Jun 2018

Approval

-

Last Review Mission

-

Last PDS Update

28 Mar 2018

Project Page




Date Generated

23 April 2018


Myanmar: Greater Mekong Subregion East-West Economic Corridor Highway Development Project Name

Greater Mekong Subregion East-West Economic Corridor Highway Development

Project Number

50381-001

Country

Myanmar

Project Status

Active




TA 9314-MYA: Greater Mekong Subregion East-West Economic Corridor Highway Development Japan Fund for Poverty Reduction

US$ 2.00 million

Strategic Agendas


Drivers of Change


Sector / Subsector




Description

The technical assistance will prepare a feasibility study for a project to develop a new arterial highway between Bago and Kyaikto of about 70 kilometers (km), along the Greater Mekong Subregion (GMS) East West Economic Corridor (EWEC).


The GMS road corridors are the backbone of Myanmars transport system. The EWEC connects Thailand with Yangon and its special economic zone of Thilawa, and then onwards to Pathein, the capital of the Ayeyarwaddy delta. Improvements to this corridor will reduce national transport costs and improve regional connectivity with Thailand, and onwards to the GMS region. The Thailand, Lao PDR and Viet Nam sections of the corridor have been completed to high standards, and border facilities improved. However, most of the GMS EWEC road corridor in Myanmar has only two lanes, with a pavement in fair to poor condition; road safety features are generally missing. The alignment is long, crosses urban areas, and its low standards often make it unsafe for speeds higher than 40-60 kph. The technical assistance will prepare a feasibility study for a project to address capacity issues on the Bago-Kyaikto section of the EWEC where the current two-lane road experiences high traffic. A pre-feasibility study prepared by the Japan International Cooperation Agency (JICA) showed that the section would reach capacity between 2020 and 2025. Upgrading the current road is not the preferred solution, as it would come with high resettlement impacts, and because the alignment is long and winding in several areas. The project involves instead the construction of a new arterial highway shorter by 32 km than the current alignment, which will halve travel time. The new arterial highway will be about 70 km long, and includes a 2.3 km bridge upon the Sittaung River.

Impact

An arterial highway network supporting economic development, regional economic growth, and international industrial competitiveness in a way that is safe, environmentally-friendly and efficient is established (Master Plan for Arterial Road Network Development in Myanmar)a

Project Outcome Description of Outcome Progress Toward Outcome Implementation Progress

More efficient and safer movement of goods and people between Bago and Kyaikto, along the GMS EWEC

Description of Project Outputs

New Bago-Kyaikto highway constructed Rural access roads completed Capacity of MOC enhanced

Status of Implementation Progress (Outputs, Activities, and Issues) Geographical Location

Bago, Kyaikto

Summary of Environmental and Social Aspects Environmental Aspects Involuntary Resettlement Indigenous Peoples Stakeholder Communication, Participation, and Consultation During Project Design During Project Implementation Business Opportunities Consulting Services

ADB will recruit a consulting firm for a total estimated 52.5 person-months international consultant input and 90 person-months national consultant input. ADB will recruit the feasibility study consultant under quality-cost based selection method (90:10 quality to cost ratio), using output-based terms of reference, and full technical proposal. ADB has conducted advance action for the consulting services package.


Date, Shihiru





Executing Agencies



-

Fact Finding

21 Apr 2017 to 21 Apr 2017

MRM

-

Approval

21 Apr 2017

Last Review Mission

-

Last PDS Update

20 Feb 2018

TA 9314-MYA Milestones Approval 21 Apr 2017

Signing Date 29 Sep 2017

Closing

Effectivity Date 29 Sep 2017

Original 31 Oct 2018


0.00

Cofinancing

2,000,000.00

Total

Beneficiaries

0.00

0.00

30 Sep 2019

Actual -


Counterpart Gov

Revised

Project Sponsor

Date

Amount

Others 0.00

0.00

2,000,000.00

21 Apr 2017

Project Page




Date Generated

23 April 2018

146,475.00


Myanmar: Greater Mekong Subregion East-West Economic Corridor Highway Development Project Project Name

Greater Mekong Subregion East-West Economic Corridor Highway Development Project

Project Number

50381-006

Country

Myanmar

Project Status

Proposed


Loan


Loan: Greater Mekong Subregion East-West Economic Corridor Highway Development Project concessional ordinary capital resources lending / Asian Development Fund

US$ 200.00 million

Strategic Agendas


Drivers of Change


Sector / Subsector




Description

The project to develop a new arterial highway between Bago and Kyaikto of about 70 kilometers (km), along the Greater Mekong Subregion (GMS) East West Economic Corridor (EWEC).


The GMS road corridors are the backbone of Myanmars transport system. The EWEC connects Thailand with Yangon and its special economic zone of Thilawa, and then onwards to Pathein, the capital of the Ayeyarwaddy delta. Improvements to this corridor will reduce national transport costs and improve regional connectivity with Thailand, and onwards to the GMS region. The Thailand, Lao PDR and Viet Nam sections of the corridor have been completed to high standards, and border facilities improved. However, most of the GMS EWEC road corridor in Myanmar has only two lanes, with a pavement in fair to poor condition; road safety features are generally missing. The alignment is long, crosses urban areas, and its low standards often make it unsafe for speeds higher than 40-60 kph. The Project will address capacity issues on the Bago-Kyaikto section of the EWEC where the current two-lane road experiences high traffic. A pre-feasibility study prepared by the Japan International Cooperation Agency (JICA) showed that the section would reach capacity between 2020 and 2025. Upgrading the current road is not the preferred solution, as it would come with high resettlement impacts, and because the alignment is long and winding in several areas. The project involves instead the construction of a new arterial highway shorter by 32 km than the current alignment, which will halve travel time. The new arterial highway will be about 70 km long, and includes a 2.3 km bridge upon the Sittaung River.

Impact

An arterial highway network supporting economic development, regional economic growth, and international industrial competitiveness in a way that is safe, environmentally-friendly and efficient is established (Master Plan for Arterial Road Network Development in Myanmar)a

Outcome

More efficient and safer movement of goods and people between Bago and Kyaikto, along the Greater Mekong Subregion (GMS) East-West Economic Corridor (EWEC).

Outputs

New Bago-Kyaikto highway constructed Rural access roads completed Capacity of MOC enhanced

Geographical Location Safeguard Categories

Environment

A


A

Indigenous Peoples

B

Summary of Environmental and Social Aspects Environmental Aspects Involuntary Resettlement Indigenous Peoples Stakeholder Communication, Participation, and Consultation During Project Design During Project Implementation Responsible ADB Officer

Date, Shihiru





Executing Agencies



24 Apr 2017

Fact Finding

01 May 2019 to 31 May 2019

MRM

30 Sep 2019

Approval

-

Last Review Mission

-

Last PDS Update

28 Mar 2018

Project Page




Date Generated

23 April 2018


Myanmar: Strengthening Climate and Disaster Resilience of Myanmar Communities Project Name

Strengthening Climate and Disaster Resilience of Myanmar Communities

Project Number

50403-001

Country

Myanmar

Project Status

Active




TA 9307-MYA: Strengthening Climate and Disaster Resilience of Myanmar Communities Government of Canada

US$ 7.50 million

Strategic Agendas


Drivers of Change

Governance and capacity development Knowledge solutions Partnerships

Sector / Subsector

Agriculture, natural resources and rural development - Agricultural policy, institutional and capacity development Public sector management - Public expenditure and fiscal management



Description

Over the last few years, the Government of Myanmar has strengthened its policy, capacity, and institutional landscape for disaster risk management (DRM) and climate change adaptation (CCA). Actions includes the adoption of the National Disaster Management Law, 2013; formulation of the Myanmar Action Plan on Disaster Risk Reduction, 2009 (currently being updated) and the National Adaptation Programme of Action, 2009; development of the Nationally Determined Contribution; ongoing formulation of the National Climate Change Strategy; ongoing formulation of the Myanmar National Framework for Community Disaster Resilience; establishment of the National Disaster Management Fund and the Disaster Management Training Center. While these advancements demonstrate the commitment of the government to adopt a proactive approach towards strengthening climate and disaster resilience, there remain further needs to strengthen resilience to extreme weather events, including improving the understanding of disaster and climate risk, undertaking investments (structural and non-structural) at all levels to reduce risk, and strengthening the financial management of residual disaster risk. In particular, there has been limited effort to develop disaster risk financing (DRF) instruments for post-disaster response. The primary ex ante DRF instrument in use the budgetary reserve for post-disaster response is insufficient, thus requiring the government to rely heavily on international assistance and budget reallocations in the event of a major disaster. There has been no assessment of disaster risk from a fiscal perspective or associated financing gap analysis, which is a pre-requisite for designing sustainable comprehensive disaster risk financing strategies and individual instruments, such as insurance mechanisms. The limited financial capacity of agricultural farmers and small and medium enterprises to manage disaster risk including highly limited insurance coverage places additional contingent liability on government. Moreover, the current legislative and regulatory environment further puts the private insurance companies and microfinance institutions at risk and reduces their interest in expanding coverage in hazard-prone areas. For example, the current legislative and regulatory environment does not allow insurance companies to price their policies according to risk in a specific area, thereby reducing their interest in expanding coverage in hazard prone areas. The CDTA aims to address these issues by taking a comprehensive approach of combining disaster risk reduction, CCA, and DRF. It will include outputs related to (i) strengthening climate and disaster risk governance; (ii) enhancing capacity to undertake disaster-resilient investments in agriculture and rural development; and (iii) increasing awareness and capacity for disaster risk financing. Recognizing the novelty of DRF in Myanmar, this comprehensive approach will help establish the building blocks that are prerequisites for identifying disaster risk financing policy priorities and developing solutions, while at the same time catalyzing climate- and disaster-resilient development. Activities will be primarily implemented at the national level and with specific pilots in Ayeyarwady region, because of its high risks to natural hazards (floods, tropical cyclones, tsunamis); high socioeconomic vulnerabilities, such as high population density (being among the three most populous region in Myanmar) with 32% of population below the poverty line; and high dependence on climate-sensitive livelihoods.


Disasters triggered by natural hazards floods, tropical cyclones, landslides, and droughts affect the lives and livelihoods of a significant share of Myanmar's population. For example, Cyclone Nargis in 2008 affected the lives of more than 1.5m people in the Ayeyarwady delta and resulted in a loss of 74% of the gross domestic product of Ayeyarwady division. Modeling estimates by the United Nations indicate that Myanmar experiences an average annual loss from disasters of $2.1 billion, equivalent to 3.23% of the country's 2014 gross domestic product over the long term. The impacts of disasters derive from both large-scale events and the accumulated effects from many localized small-scale events, such as flash floods and landslides, are largely confined to local communities and especially absorbed by the poorer households, smaller businesses, and marginalized members of the community. The interaction of natural hazards with existing socioeconomic vulnerabilities in the lives and livelihoods of local people further increase disaster risk. And with poverty remaining a key development challenge in Myanmar, the 76% of the poor living in rural areas have heightened vulnerability to natural hazards due to limited access to land and social and financial services, and a high dependence on climate-sensitive livelihoods. Women are likely to be particularly vulnerable and have least ability to cope with and recover from disasters reflecting their exclusion from land ownership; limited access to credit, trainings, and information technology (such as mobile phones); and poor representation in decision making and leadership. With climate change, the hazard patterns in Myanmar are altering, thereby further increasing the disaster risk. It is anticipated that the potential climate change impacts could lead to higher hazard levels for tropical cyclones in coastal regions with a history of cyclone landfalls, floods in low flat regions, torrential rains in regions with long exposure to the southwest monsoon flow, and extreme temperature and drought in the Central Dry Zone. Sector vulnerability is also expected to increase in agriculture, water resources, public health, forestry, and coastal systems. The Government of Myanmar has identified in its DRM- and CCA-related policy frameworks the increasing suffering of the population from climate-related disasters, and the need for support in strengthening resilience to extreme weather events. Accordingly, since 2015, the Asian Development Bank (ADB) has supported the Government of Myanmar develop a National Framework for Community Disaster Resilience, which identifies potential opportunities for strengthening resilience of communities through investments in key sectors and themes of development, such as, agriculture, rural development, and financial inclusion, among others. The proposed technical assistance (TA) project responds to the request from the Government of Myanmar to support its implementation of the National Framework for Community Disaster Resilience.

Impact

Increased capacity for strengthening resilience, including financial resilience, to extreme weather events in Myanmar

Project Outcome Description of Outcome

Climate and disaster risk governance at the national level and in Ayeyarwady region in Myanmar strengthened

Progress Toward Outcome

On-going.

Implementation Progress Description of Project Outputs

1. Capacity of government agencies to understand climate and disaster risk at the national level and in Ayeyarwady region in Myanmar improved 2. Capacity of government agencies at the national level and of selected communities in Ayeyarwady region to undertake disaster-resilient investments in agriculture and rural development sector enhanced 3. Awareness and capacity for disaster risk financing among government and the private sector in Myanmar increased

Status of Implementation Progress (Outputs, Activities, and Issues)

Inception mission was undertaken in early August 2017. During the mission a draft work-plan was prepared and discussed with all relevant stakeholders. The first Steering Committee met in November 2017. Under Output 1 the consulting firm was recruited in January 2018 and should be mobilized soon. For Outputs 2 and 3, three packages were advertised and the team is in the process of shortlisting.


Nation-wide, Ayeyawady Region

Summary of Environmental and Social Aspects Environmental Aspects Involuntary Resettlement Indigenous Peoples Stakeholder Communication, Participation, and Consultation During Project Design

During project design a series of consultations took place gathering together several stakeholders from private sector, civil society, government, etc.

During Project Implementation The inception mission conducted in August 2017 organized a workshop gathering all relevant stakeholders to ensure effective coordination. and maximize synergies. Business Opportunities Consulting Services

The project will require about 170 person-months of international and 213 person-months of national consulting services with expertise in various aspects of disaster risk management (DRM ), including disaster risk assessment, disaster risk management planning, disaster risk management capacity building, disaster risk management and gender, disaster risk management in agriculture and rural development, disaster risk financing, and disaster-resilient microfinance. The DRM specialist/international coordinator, DRM national coordinator, and DRM gender expert will be engaged by ADB on an individual basis and the remaining consultants through firms, in accordance with the Guidelines on the Use of Consultants (2013, as amended from time to time). The TA will be implemented over 48 months, from April 2017 to March 2021.


Dina, Stefania




Myanmar Resident Mission

Executing Agencies

Ministry of Social Welfare, Relief and Resettlement Office Building No. 23, Ministry Office, Nay Pyi Taw, Myanmar


12 Jan 2017

Fact Finding

24 Oct 2016 to 28 Oct 2016

MRM

-

Approval

31 Mar 2017

Last Review Mission

-

Last PDS Update

22 Jan 2018


Signing Date

31 Mar 2017

Closing

Effectivity Date

24 May 2017

24 May 2017

Original 31 Mar 2021


0.00

Cofinancing

7,500,000.00

Total

Beneficiaries

0.00

0.00

-

Actual -


Counterpart Gov

Revised

Project Sponsor

Date

Amount

Others 0.00

0.00

7,500,000.00

31 Mar 2017

Project Page




Date Generated

23 April 2018

192,837.63


Myanmar: Resilient Communities Development Project Project Name

Resilient Communities Development Project

Project Number

51242-001

Country

Myanmar

Project Status

Active




TA 9413-MYA: Resilient Communities Development Project Technical Assistance Special Fund

US$ 1.00 million

Climate Change Fund

US$ 200,000.00

Strategic Agendas


Drivers of Change

Governance and capacity development Private sector development

Sector / Subsector

Agriculture, natural resources and rural development - Irrigation - Rural flood protection Rural market infrastructure - Rural water supply services



Description

The project will support government's policy of strengthening resilience through rural livelihoods and village infrastructure by incorporating climate and disaster risk considerations in planning, design and implementation of community interventions. The project will also build capacities of villagers, township and village tract level administrations and strengthen mechanisms in delivering basic services and livelihood support to the poorest communities in rural Myanmar. It will adopt a proven community based development approach to deliver community infrastructure and livelihood projects to 25 poor townships covering 1,000 village tracts and an estimated 4,000 villages, covering approximately 600,000 households.


The project supports the government's RDSF (2014) that promotes resilient communities in pursuit of agricultural and rural development and advances implementation of the Myanmar National Framework for Community Disaster Resilience. The project is consistent with ADB's country partnership strategy (2017-2021) and is included in ADB's country operations business plan (2018-2020).

Impact Project Outcome Description of Outcome Progress Toward Outcome Implementation Progress Description of Project Outputs Status of Implementation Progress (Outputs, Activities, and Issues) Geographical Location Safeguard Categories Environment

B


B

Indigenous Peoples

A

Summary of Environmental and Social Aspects Environmental Aspects Involuntary Resettlement Indigenous Peoples Stakeholder Communication, Participation, and Consultation During Project Design

Consultations have been conducted with the government, development partners and civil society.

During Project Implementation Consultations with government, development partners, civil society and beneficiaries will be conducted during the course of implementation. Business Opportunities Consulting Services The TA will require 43 person-months of international and 77 person months of national consulting. ADB will engage individual consultants. Responsible ADB Officer

Dina, Stefania




Environment, Natural Resources & Agriculture Division, SERD

Executing Agencies

Department of Rural Development Office No. 14 Na Pyi Taw, Myanmar Ministry of Agriculture, Livestock and Irrigation Office Bldg No. 15, Nay Pyi Taw, Myanmar


02 Sep 2017

Fact Finding

30 Jun 2017 to 30 Jun 2017

MRM

-

Approval

26 Oct 2017

Last Review Mission

-

Last PDS Update

26 Mar 2018


Signing Date

26 Oct 2017

Closing

Effectivity Date

10 Jan 2018

10 Jan 2018

Original 30 Jun 2019


Cofinancing

1,200,000.00

0.00

Total

Beneficiaries

0.00

0.00

-

Actual -


Counterpart Gov

Revised

Project Sponsor

Date

Amount

Others 0.00

0.00

1,200,000.00

26 Oct 2017

Project Page




Date Generated

23 April 2018

11,465.15

ADB provides the information contained in this project data sheet (PDS) solely as a resource for its users without any form of assurance. Whilst ADB tries to provide high quality content, the information are provided "as is" without warranty of any kind, either express or implied, including without limitation warranties of merchantability, fitness for a particular purpose, and non-infringement.

ADB specifically does not make any warranties or representations as to the accuracy or completeness of any such information.

ASEAN+3 BOND MARKET GUIDE MYANMAR

i

ASEAN+3 BOND MARKET GUIDE 2018 MYANMAR

Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2018 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2018. ISBN 978-92-9261-028-9 (print), 978-92-9261-029-6 (electronic) Publication Stock No. TCS179154-2 DOI: http://dx.doi.org/10.22617/TCS179154-2 The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/ By using the content of this publication, you agree to be bound by the terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and terms of use at https://www.adb.org/terms-use#openaccess This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Notes: Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda ADB recognizes “Union of Myanmar” as the Republic of the Union of Myanmar. In this report, international standards for naming conventions—International Organization for Standardization (ISO) 3166 for country codes and ISO 4217 for currency codes—are used to reflect the discussions of the ASEAN+3 Bond Market Forum to promote and support implementation of international standards in financial transactions in the region. ASEAN+3 comprises the Association of Southeast Asian Nations (ASEAN) plus the People’s Republic of China, Japan, and the Republic of Korea. The economies of ASEAN+3 as defined in ISO 3166 include Brunei Darussalam (BN; BRN); Cambodia (KH; KHM); the People’s Republic of China (CH; CHN); Hong Kong, China (HK; HKG); Indonesia (ID; IDN); Japan (JP; JPN); the Republic of Korea (KR; KOR); the Lao People’s Democratic Republic (LA; LAO); Malaysia (MY; MYS); Myanmar (MM; MMR); the Philippines (PH; PHL); Singapore (SG; SGP); Thailand (TH; THA); and Viet Nam (VN; VNM). The currencies of ASEAN+3 as defined in ISO 4217 include the Brunei dollar (BND), Cambodian riel (KHR), Chinese renminbi (CNY), Hong Kong dollar (HKD), Indonesian rupiah (IDR), Japanese yen (JPY), Korean won (KRW), Lao kip (LAK), Malaysian ringgit (MYR), Myanmar kyat (MMK), Philippine peso (PHP), Singapore dollar (SGD), Thai baht (THB), and Vietnamese dong (VND).

Contents Tables and Figures

v

Foreword

vi

Acknowledgments

vii

Abbreviations

viii

I.

Overview A. Introduction B. Historical Background C. Development of the Legislative Foundation D. Bond Issuance E. Cooperation within the ASEAN Framework

II.

Legal and Regulatory Framework A. Legal Tradition B. English Translation C. Legislative Structure D. Myanmar Bond Market Regulatory Structure E. Regulatory Framework for Debt Securities F. Debt Securities Issuance Regulatory Processes G. Continuous Disclosure Requirements in the Myanmar Bond Market H. Self-Regulatory Organizations in the Myanmar Bond Market I. Rules Related to Licensing J. Yangon Stock Exchange Business Regulations Related to Listing, Disclosure, and Trading of Securities K. Market Entry Requirements (Nonresidents) L. Market Exit Requirements (Nonresidents) M. Regulations and Limitations Relevant for Nonresidents N. Regulations on Credit Rating Agencies

III. Characteristics of the Myanmar Bond Market A. Definition of Securities B. Types of Bonds and Notes C. Money Market Instruments D. Segmentation of the Market E. Methods of Issuing Bonds and Notes (Primary Market) F. Governing Law and Jurisdiction (Bond and Note Issuance) G. Language of Documentation and Disclosure Items H. Registration of Debt Securities I. Listing of Securities J. Methods of Trading Securities (Secondary Market) K. Securities Pricing L. Transfers of Interest in Bonds and Notes M. Market Participants N. Definition of Professional Investors O. Credit Rating Requirements

1 1 2 4 6 7 8 8 8 8 13 16 17 23 25 25 26 27 28 28 29 30 30 31 32 33 34 36 36 37 37 37 38 39 41 45 45

Contents

P. Market Features for Investor Protection Q. Bond Trustee or Bondholder Representative R. Bankruptcy and Insolvency Provisions S. Event of Default and Cross-Default

45 46 46 46

IV. Bond and Note Transactions and Trading Market Infrastructure A. Trading of Bonds and Notes B. Trading Platforms C. Mandatory Trade Reporting D. Market Monitoring and Surveillance in the Secondary Market E. Bond Information Services F. Yields, Yield Curves, and Bond Indices G. Repo Market H. Securities Borrowing and Lending

47 47 47 48 49 49 50 51 52

V.

53

Description of the Securities Settlement System

VI. Bond Market Costs and Taxation A. Costs Associated with Bond and Note Issuance B. Ongoing Costs for Issuers of Corporate Bonds and Notes C. Costs for Deposit and Withdrawal of Bonds and Notes D. Costs for Account Maintenance at the Central Securities Depositories in Myanmar E. Costs Associated with Securities Trading F. Costs for Settlement and Transfer of Bonds and Notes G. Taxation Framework and Requirements

55 56 56 57

VII. Market Size and Statistics

60

VIII. Presence of an Islamic Bond Market

61

IX. Myanmar Bond Market Challenges and Opportunities A. Challenges in the Myanmar Bond Market B. Opportunities in the Myanmar Bond Market

62 62 63

X.

65 65 67

Recent Developments and Future Direction A. Recent Major Developments B. Future Direction

Appendixes 1 Practical References 2 List of Laws and Regulations 3 Glossary of Technical Terms

54 54 55 55

68 69 72

Tables and Figures Tables 1.1 1.2 2.1 2.2 3.1 3.2 4.1 6.1 6.2 6.3 A2.1 A2.2 A2.3 A2.4

Total Sales of Government Treasury Bonds Non-Auction .................................6 Total Sales of Government Treasury Bonds at Auction .....................................7 Examples of Securities Market Legislation by Legislative Tier ..........................9 Authorities Involved in Regulatory Processes by Issuer Type .........................18 Segmentation of the Market—Outstanding Value of Government Treasury Bonds for Selected Years .................................................................33 Segmentation of the Market—Outstanding Value of Government Treasury Bonds Issued at Auction...................................................................................34 Yangon Stock Exchange—Trading Hours .......................................................48 Securities Brokerage Fee in Myanmar .............................................................56 Duties and Taxes Related to Debt Securities in Myanmar ..............................57 Myanmar’s Tax Treaties with Other Countries .................................................59 Laws with Relevance for the Securities Market in Myanmar ...........................69 Securities and Exchange Commission of Myanmar Notifications ....................70 Securities and Exchange Commission of Myanmar Instructions .....................70 Yangon Stock Exchange Business Regulations ..............................................71

Figures 1.1 1.2 1.3 1.4 3.1 4.1 4.2

Capital Market Development Committee ...........................................................3 Myanmar Capital Market Development Roadmap, 2008 ...................................4 Contents of the Securities Exchange Law, 2013 ...............................................5 Contents of the Securities and Exchange Rules, 2015 ......................................6 Yangon Stock Exchange Securities Price Information Web Page ...................39 Central Bank of Myanmar—Government Securities Web Page ......................49 Prices and Yields of Government Treasury Bonds Issued via Auction ............50

Foreword The Asian Development Bank (ADB) is working closely with the Association of Southeast Asian Nations (ASEAN) and the People’s Republic of China, Japan, and the Republic of Korea—collectively known as ASEAN+3—to develop local currency bond markets and facilitate regional bond market integration under the Asian Bond Markets Initiative to strengthen the resilience of the region’s financial systems. Thanks to the efforts of member governments, local currency bond markets in ASEAN, the People’s Republic of China, and the Republic of Korea have grown rapidly, with the total outstanding amount of bonds reaching more than USD10 trillion in 2016. Despite this remarkable development, intraregional investment in bond markets has remained subdued. As ADB has estimated that developing Asia will need to invest USD26 trillion from 2016 to 2030 (or USD1.7 trillion per year) in infrastructure for its continued growth, it is critical to mobilize the region’s vast savings for the enormous investment needs. As an essential platform for such resource mobilization, the financial markets in ASEAN+3 need to be more harmonized and integrated. Also, the regional efforts should support the developing member countries at early stages of market development. The ASEAN+3 Bond Market Forum (ABMF) was established with the endorsement of the ASEAN+3 Finance Ministers in 2010 as a common platform to foster the standardization of market practices and harmonization of regulations relating to crossborder bond transactions in the region. As an initial step, ABMF published the ASEAN+3 Bond Market Guide in 2012, which was welcomed as the first official information source offering a comprehensive explanation of the region’s bond markets. Since publication of the ASEAN+3 Bond Market Guide, bond markets in the region have continued to develop. ABMF recognizes the need for revisions to the guide to reflect these changes, though it is never an easy task to keep up with rapid changes in the markets. This report is an outcome of the strong support and kind contributions of ABMF members and experts, particularly from Myanmar. The report should be recognized as a collective good to support bond market development among ASEAN+3 members. It is our hope that the revised ASEAN+3 Bond Market Guide will facilitate further development of the region’s bond markets, contribute to increased intraregional bond transactions, and promote efficient allocation of capital within the region.

Yasuyuki Sawada Chief Economist and Director General Economic Research and Regional Cooperation Department

Acknowledgments The ASEAN+3 Bond Market Guide was first published in 2012 as the initial output of Phase 1 of the ASEAN+3 Bond Market Forum (ABMF).1 In addition to an update of the original 11 jurisdictions’ bond markets guides, three new markets were taken up this time. Across the region, economies with nascent domestic bond markets, including Myanmar, have experienced tremendous development over the past 5 years. Now in Phase 3, ABMF would like to share, in the public domain, information on these developments by publishing a Myanmar Bond Market Guide for the first time. The ABMF Sub-Forum 1 team—comprising Satoru Yamadera (Principal Financial Sector Specialist, Asian Development Bank, Economic Research and Regional Cooperation Department); Kosintr Puongsophol (Financial Sector Specialist, Asian Development Bank, Economic Research and Regional Cooperation Department); and Asian Development Bank consultants Shigehito Inukai and Matthias Schmidt—would like to stress the significance and magnitude of the contributions made by the ABMF national members for Myanmar, Central Bank of Myanmar, and Securities and Exchange Commission of Myanmar. These policy bodies, regulatory authorities, and market institutions generously gave their time for market visit meetings, discussions, and follow-up. They have also reviewed and provided inputs on the draft Myanmar Bond Market Guide over the course of ABMF Phase 3. This appreciation extends to the market institutions and professional firms who so kindly hosted the team during the original market visit: the Ministry of Planning and Finance of Myanmar, Myanma Economic Bank, the Myanmar Securities Exchange Centre Co., Ltd. (of which parts have become the nucleus of the Yangon Stock Exchange), Nishimura & Asahi Yangon Office, and Win Thin & Associates. They kindly provided answers to the questionnaires prepared by the ADB team and gave valuable comments for their respective market segments. The team is grateful for the continued support from the Daiwa Institute of Research on market developments in Myanmar. The team also would like to express appreciation to Mori Hamada & Matsumoto for their professional legal support. No part of this report represents the official views or opinions of any institution that participated in this activity as an ABMF member, observer, or expert. The ABMF SubForum 1 team bears sole responsibility for the contents of this report.

January 2018 ASEAN+3 Bond Market Forum

1

ASEAN+3 refers to the 10 members of the Association of Southeast Asian Nations (ASEAN) plus the People’s Republic of China, Japan, and the Republic of Korea.

Abbreviations ABMF ADB AMBIF ASEAN ASEAN+3

CBM CMDC DICA FIL IMF JPX MBA MEB MMK MOFR MOPF MSEC NBFI OTC SECM SEL SER SF1 SRO USD YSX

ASEAN+3 Bond Market Forum Asian Development Bank ASEAN+3 Multi-Currency Bond Issuance Framework Association of Southeast Asian Nations Association of Southeast Asian Nations plus the People’s Republic of China, Japan, and the Republic of Korea Central Bank of Myanmar Capital Market Development Committee Directorate of Investment and Company Administration Financial Institutions Law International Monetary Fund Japan Exchange Group Myanmar Banks Association Myanma Economic Bank Myanmar kyat (ISO code) Ministry of Finance and Revenue Ministry of Planning and Finance Myanmar Securities Exchange Center non-bank financial institution over-the-counter Securities and Exchange Commission of Myanmar Securities Exchange Law Securities and Exchange Rules Sub-Forum 1 of ABMF self-regulatory organization United States dollar Yangon Stock Exchange

USD1 = MMK1,360.00 as of 31 August 2017 (CBM Reference Exchange Rate)

Overview A.

Introduction

The Republic of the Union of Myanmar (hereafter Myanmar) began to emphasize the development of its financial and capital markets in 2008. Much has been achieved since then. There were a number of significant milestones in the Myanmar financial and capital markets in 2013, including the Central Bank of Myanmar (CBM) gaining its independence by law from the then Ministry of Finance (MOF), and the passage of the Securities Exchange Law (SEL). The SEL (i) laid the foundation for the key legal framework for the securities market, (ii) established the Securities and Exchange Commission of Myanmar (SECM) and the Yangon Stock Exchange (YSX), and (iii) defined market participants and their activities.1 While no defined corporate bond market existed at the time of publication of this Bond Market Guide, the Government of Myanmar began issuing Treasury bonds (Tbonds) in 1993. CBM has been directly issuing T-bonds to the market—both public and private investors—since December 2009. Legislative and regulatory efforts are under way to further define, organize, and implement a securities market, its institutions and participants, pursuant to the introduction of the SEL. Based on this law, SECM commenced its work in November 2014. In July 2015, SECM issued the Securities and Exchange Rules (SER) and subsequently released notifications and instructions with further regulations for the securities market.2 A complete list of relevant notifications and instructions is provided in Appendix 2. By arrangement of MOF and SECM, the YSX was successfully opened on 9 December 2015.3 It began its operation in March 2016 with the equity listing of First Myanmar Investment Co., Ltd and had already achieved three listings as of August 2016. The SECM is now driving the development of the bond market through the issuance of rules and notifications, as well as capacity building efforts. Since 2016, Myanmar has experienced comprehensive revisions of the legal framework for its financial and capital markets, including the replacement of fundamental legislation such as (i) the Myanmar Companies Act, 1914;4 (ii) the associated Myanmar Companies Rules, 1940;5 and (iii) the Myanmar Investment Law, which was announced on 18 October 2016 and subsequently issued with accompanying rules on 30 March 2017. The Myanmar Investment Law, 2016 became 1

See http://secm.gov.mm/wp-content/uploads/2015/12/4.SECM-Law-Latest-version-English.pdf The SER are not yet available in an English version. 3 See https://ysx-mm.com/ 4 See http://www.burmalibrary.org/docs15/1913-Myanmar_Companies_Act_1913-en.pdf 5 See http://www.dica.gov.mm/sites/dica.gov.mm/files/documentfiles/myanmar_companies_rules_1940_eng.pdf 2

2

Myanmar

Bond Market Guide 2018 effective on 1 April 2017.6 The Union President signed into law the new Financial Institutions Law (FIL) in 2016 to regulate the activities of banks and non-bank financial institutions (NBFIs) in the financial and securities market.7 The creation of these new laws was supported by both the Asian Development Bank (ADB) and the World Bank. The objective has been to bring key legislation in line with current best practices and new developments in financial products and instruments, as well as with the most recent elements of regulatory supervision for various financial institutions and individual market segments, in a harmonized manner. Subsequent to the introduction of the SEL, policy bodies and regulatory authorities will continue to define additional legislation and regulations according to market needs. These efforts are jointly led by the Ministry of Planning and Finance (MOPF) and the Attorney General’s Office. The Government of Myanmar and the institutions tasked with the development of the securities markets are conscious of the challenges ahead. The establishment of market infrastructure and participating institutions, including the regulatory authorities themselves, require certain skill sets, experience, and specialist knowledge in the relevant domains. Critical tasks are both legal and operational in nature, including technology upgrading and capacity building measures, and strengthening the ability to identify, train, and deploy skilled personnel across the industry, markets, and related regulatory authorities. The purpose of this Bond Market Guide is to provide an update for current and future domestic, regional, and international market participants on the tremendous developments in the Myanmar securities market.

B.

Historical Background

As part of transforming Myanmar from a planned economy to a market-oriented system, the Government of Myanmar started the process of financial market modernization and liberalization in the early 1990s, allowing private sector participation in financial activities. To develop a financial system in line with the market envisaged by the government and to promote the efficiency of financial activities, the Central Bank of Myanmar Law was enacted on 2 July 1990. In 1996, the Capital Market Study Committee was established by presidential decree, under the then Ministry of Finance and Revenue (MOFR). Following that, the Myanmar Securities Exchange Center (MSEC) was formed as a joint venture company between Myanma Economic Bank, a state-owned bank, and the Daiwa Institute of Research of Japan, to help develop an organized capital market in Myanmar.8 Using this joint venture as a starting point, the establishment of a securities exchange and the development of an over-the-counter (OTC) market were envisaged. However, due the 1997/98 Asian financial crisis, the development of the securities market stagnated. To refocus on market development, the Capital Market Development Committee was established in 2008 with the approval of the Prime Minister’s Office. 6 The Myanmar Investment Law, 2016 and its subsequent rules and notifications can be accessed on the Directorate of Investment and Company Administration website at http://www.dica.gov.mm/en/allinformations 7 See http://www.cbm.gov.mm/sites/default/files/regulate_launder/financial_institutions_law_updated_by_cbm_201 60303website-1_0.pdf 8 See Government of the Union of Myanmar, Ministry of Finance. Myanma Economic Bank. http://www.mof.gov.mm/en/content/myanma-economic-bank

Overview

1. Capital Market Development Committee With a view to support the long-term capital needs for economic enterprises, companies, and investors, and to efficiently protect investments and contribute to the development and modernization of Myanmar’s economy, the Capital Market Development Committee (CMDC) was formed by the then MOFR on 1 July 2008 and led by its minister, with the approval of the Prime Minister’s Office. CMDC was assigned to define what became the SEL and to set up what became YSX and other infrastructure needed for developing the capital market. To carry out these objectives and to provide effective and efficient assistance to the committee, six subcommittees were formed on 19 August 2008 (Figure 1.1).

Figure 1.1: Capital Market Development Committee— Subcommittee Areas of Responsibility 1. 2. 3. 4. 5. 6.

Development of domestic securities market Encouragement of public companies Enactment of the Securities Exchange Law Establishment of securities companies Training, education, and information on the capital market Accounting and auditing standards for the securities market

Source: Capital Market Development Committee.

The CMDC was assigned to plan for the development of the capital market in line with the Association of Southeast Asian Nations (ASEAN) Capital Market Vision. The CMDC prepared a development roadmap with a precise schedule of itemized tasks and policies to be implemented in three phases from 2008 to 2015. 2. The Myanmar Capital Markets Development Roadmap, 2008 The Myanmar Capital Markets Development Roadmap, 2008 covered various policy items to be implemented, including stipulating the necessary legal framework and establishing regulatory authorities, relevant securities market institutions, and related infrastructure. The three individual phases of the roadmap are shown in Figure 1.2. The first phase was implemented in 2008–2009 and the second phase in 2010–2012. The third phase began in 2013 and had fundamentally reached completion by the end of 2015. While the initiative to develop the capital and securities market was lauded, its development was slowed by sociopolitical circumstances. In order to develop efficient market infrastructure and a trading market for government bonds, Myanma Economic Bank (MEB) and MSEC were appointed as Authorised Selling Agents, which are known as “underwriters” in domestic practice, of T-bonds in January 2010. Beginning in March 2011, the capital market’s development accelerated due to Myanmar’s improved macroeconomic stability, the government’s securing of stable long-term funding sources, and the privatization of state-owned enterprises. These developments coincided with the preparation of the establishment of the ASEAN Economic Community in 2015.

3

4

Myanmar

Bond Market Guide 2018

Figure 1.2: Myanmar Capital Market Development Roadmap, 2008 Phase 1 2008– 2009

Diversify Treasury bonds issued by Central Bank of Myanmar. Increase number of public companies and issuance of corporate bonds. Constitute a committee of development for capital markets. Promote and disseminate knowledge of securities through workshops, seminars, business talks, and media. Build capacity of local employees in the financial sector. Attend international conferences and seminars in ASEAN and other countries.

Phase 2 2010– 2012

Enforce the Securities and Exchange Law. Issue municipal bonds. Convert state-owned companies to joint-stock corporations. Educate institutional investors. Establish an industry association for the securities market.

Phase 3 2013– 2015

Establish a stock exchange. Diversify methods of securities transaction.

ASEAN = Association of Southeast Asian Nations. Source: Capital Market Development Committee.

In August 2012, CBM signed a memorandum of understanding with the Government of Japan to establish the SEL and the related regulations necessary for development of a fair and sound capital market in Myanmar, as well as all relevant human resource development. At the same time, the Asian Bond Markets Initiative, with assistance from the Japan– ASEAN Fund for Technical Assistance and the ASEAN Secretariat, assigned technical assistance for the development of the bond market to the Daiwa Institute of Research. Phase I of the technical assistance was implemented between June 2011 and May 2012. Phase II started implementation in June 2013. The SEL was approved by the National Assembly in July 2013 and came into force on 2 August 2013, laying the foundation for the establishment of SECM and YSX. The government is hoping to sell long-term T-bonds, starting with 2-year issuances and moving to 3-year and 5-year bonds. The Treasury Department of the MOPF indicated in early 2016 that discussions would be held on whether insurance firms and pension companies would be able to buy T-bonds.9

C.

Development of the Legislative Foundation

As stated above, Myanmar’s economy is undergoing a rapid transformation, including its financial and capital markets. Since Myanmar is at the beginning stages of the

9

See http://www.mmtimes.com/index.php/business/20811-government-to-tackle-insurance-regulations.html

Overview development of a domestic bond market, this Bond Market Guide puts additional emphasis on explaining the legislative foundations of the bond market. Fundamental legislation—in the form of the Myanmar Companies Act, 1914 and the Financial Institutions of Myanmar Law, 1990—has been reviewed and revised to support this transformation (see also Chapter II.C). In addition to such fundamental legislation, the SEL, enacted on 31 July 2013 as the first key legislation for the securities market, laid the foundation for the legislative framework for the bond market and the securities market at large. The SEL consists of 13 chapters comprising 72 articles (Figure 1.3).

Figure 1.3: Contents of the Securities Exchange Law, 2013 Chapter I: Chapter II: Chapter III: Chapter IV: Chapter V: Chapter VI: Chapter VII: Chapter VIII: Chapter IX: Chapter X: Chapter XI: Chapter XII: Chapter XIII:

Title and Definition Objectives Formation of the Commission and Duties and Powers of the Commission Securities Company Licence Issuing Securities Stock Exchange Over-The-Counter Market Prohibited Acts Depository and Clearing of the Securities Appeal Prohibitions and Penalties Miscellaneous

Source: Securities and Exchange Commission of Myanmar. Securities Exchange Law. http://secm.gov.mm/wpcontent/uploads/2015/12/4.SECM-Law-Latest-version-English.pdf

As a conduit for the development of the securities market, its institutions, and participants, the SEL was intended to set out the • • • • • •

establishment of SECM as the main regulatory body to supervise the securities market; licenses available for securities businesses (e.g., dealing, brokerage, underwriting, investment advisory, and company representative); framework for the establishment of what became YSX; establishment of an OTC market; establishment of a securities depository and clearing business; and prohibited acts in relation to securities trading (e.g., insider trading) and the relevant penalties.

Bonds—like all other securities—used to be required to be issued in physical form. At present, the SEL, in conjunction with the subsequent SER issued by the then MOFR and drawing on the Electronic Transaction Law, 2004, allows for the dematerialization and the implementation of a book-entry system for securities, which has so far been adopted by YSX and is expected to be applicable to corporate bond issuances as well.10

10

See http://www.wipo.int/wipolex/en/text.jsp?file_id=244521

5

6

Myanmar


Figure 1.4: Contents of the Securities and Exchange Rules, 2015 Chapter I: Chapter II: Chapter III: Chapter IV: Chapter V: Chapter VI: Chapter VII: Chapter VIII: Chapter IX: Chapter X: Chapter XI: Chapter XII:

Title and Definition The Commission Securities Company Licence Securities Issuing Continuous Disclosure Stock Exchange Over-The-Counter Market Prohibited Acts Appeal Penalties Miscellaneous

Source: Securities and Exchange Commission of Myanmar.

In turn, the SER contain the detailed provisions for the key objectives listed in its 12 chapters and 198 articles (Figure 1.4). The SER are presently not yet available in an English version. For further details on the legal framework of the bond market in Myanmar, please also refer to Chapter II.C.

D.

Bond Issuance

The Government of Myanmar has been issuing bonds since 1993. Under the previous Central Bank Law, 1990, government bonds were sold by CBM directly into the market—comprising both public and private investors. Since 2010, CBM has designated two financial institutions, Myanma Economic Bank and MSEC, to sell Tbonds to financial and nonfinancial institutions, and to private investors. CBM itself continued to sell T-bonds to financial institutions until the introduction of competitive auctions in September 2016 (see Chapters III and IV). As one means toward bond market development in Myanmar, the CBM began issuing 2-year government T-bonds in fiscal year 2010/11;11 since then, 2-year T-bonds have been issued together with regular 3-year and 5-year T-bond issues. Table 1.1 provides an overview of recent issuances prior to the introduction of the auction concept. Table 1.1: Total Sales of Government Treasury Bonds Non-Auction (MMK million) 2-Year Government Treasury Bonds

3-Year Government Treasury Bonds

5-Year Government Treasury Bonds

Total Government Treasury Bonds

April 2013–March 2014

436,487

154,225

594,028

1,184,740


79,775

68,162

276,626

424,563


285,815

310,913

212,489

809,217

802,077

533,300

1,083,143

2,418,520

Issuance Timeframe

Total Source: Central Bank of Myanmar. 11

The Government of Myanmar’s fiscal year runs from 1 April to 31 March.

Overview

With the introduction of competitive auctions, CBM started selling T-bonds to auction participants only, in accordance with the newly established auction procedures. Table 1.2: Total Sales of Government Treasury Bonds at Auction (MMK million)

Issuance Timeframe April 2016–March 2017 Total

9.0%

9.25%

9.5%

Total Government Treasury Bonds

320,000

719,670

160,000

1,199,670

320,000

719,670

160,000

1,199,670

Source: Central Bank of Myanmar.

E.

Cooperation within the ASEAN Framework

SECM has studied the handling of corporate bonds in other ASEAN member countries. SECM is also expected to sign a memorandum of understanding with the Securities and Exchange Commission, Thailand on the exchange of information on securities market practices.

7

Legal and Regulatory Framework A.

Legal Tradition

Myanmar inherited the British law tradition mainly through its historical connections with India. A number of the basic elements of legislation remain in force. These elements are gradually being replaced by modern laws in line with the country’s development needs. Please see section C for details on these developments.

B.

English Translation

As an official government policy, all laws signed by the Union President are to be translated into an official English version. The translation is undertaken by the Attorney General’s Office and may not always be available at the time the law is promulgated. At present, regulations, rules, notifications, and directives are not required to officially be translated into English. But due to their significance in the context of the legal framework, the market does greatly benefit from unofficial translations into English, as and when they are provided. As such, an unofficial translation of the SER is highly anticipated. As far as the use of typical English technical terms in the context of the securities market is concerned, the recently issued laws (see section C for details) are using terms comparable to international markets. The same usage is expected to flow through to the unofficial translations of rules and regulations that are issued pursuant to these laws, and these terms are also expected to be introduced in future legislation and regulations. YSX publishes its regulations, manuals, and guidelines predominantly in English; certain documents are only published in English. It also carries laws, rules, and notifications from SECM on its website in the Myanmar language and in English, if so available.13

C.

Legislative Structure

Like most ASEAN+3 economies, Myanmar features a multitiered legislative structure to govern the financial and capital markets, as detailed below. The Constitution of the Republic of the Union of Myanmar, in its current form drafted in 2008, is the supreme law of Myanmar.

13

See http://www.ysx-mm.com

Legal and Regulatory Framework [1st tier] Constitution of the Republic of the Union of Myanmar [2nd tier] Fundamental legislation and key legislation for the securities market [3rd tier] Rules pursuant to relevant laws [4th tier] Regulations, notifications, instructions, and similar issuances from ministries or regulatory authorities [5th tier] Instructions and announcements Table 2.1 applies the relevant legislation to the individual tiers of the legislative structure for the securities market. Table 2.1: Examples of Securities Market Legislation by Legislative Tier

Legislative Tier

Content or Significant Examples

Constitution of the Republic of the Union of Myanmar, 2008

Principles, Rights, and Obligations

Fundamental legislation (laws) and key legislation (laws) for the securities market

• • • • • •

Myanmar Companies Act, 1914 New Myanmar Company Law, 2017 Financial Institutions Law, 2016 (No. 20/2016) Government Securities Act, 1920 Union Budget Laws (for each fiscal year) Securities Exchange Law, 2013

Rules

•

Securities and Exchange Rules, 2015

Regulations, notifications, instructions and similar issuances (directives and orders from ministries or regulatory authorities)

•

SECM Notification on Prospectus for Public Offers SECM Notification on Business Time of Securities Companies and the Fee of Securities Brokerage Business (3/2015) SECM Notification Announcement of Continuous Disclosure (1/2016) YSX Trading Participant Business Regulations YSX Securities Listing Business Regulations

• • • •

Instructions and announcements

•

SECM Instruction on Use of Prospectus Format for Public Offering (5/2016)

SECM = Securities and Exchange Commission of Myanmar, YSX = Yangon Stock Exchange. a See http://secm.gov.mm/wp-content/uploads/2015/12/150914-IPO-Notification-2.pdf b See http://secm.gov.mm/wp-content/uploads/2015/12/Continuous-Disclosure-E.pdf Source: Compiled by ADB consultants for SF1 and based on publicly available information.

Fundamental legislation consists of basic laws that may govern the issuance of specific instruments and the basic roles and responsibilities of financial and securities market participants. These laws are reviewed and updated through the full legislative process and must be debated and passed by Parliament before being signed by the Union President. Key legislation is the summary term for those laws specifically aimed at a particular market, such as the bond market, or the securities market at large. These laws establish and govern bond or securities markets and market segments, their institutions and participants, and the manner in which they are able to interact. Similar to fundamental legislation, these laws are passed by Parliament and signed by the Union President before taking effect.

9

10

Myanmar

Bond Market Guide 2018 While rules that support key legislation are issued by the respective ministry, here the MOPF, rules need to be approved by the Cabinet before they are signed by the relevant minister and promulgated in the market. SECM, as the government body charged with the overall day-to-day supervision and governance of the securities market, issues such rules. These rules interpret aspects from key legislation and elaborate on the roles and responsibilities of market institutions and their participants. Additional regulations and notifications may be issued by MOPF, CBM, SECM, and YSX for the market segments or activities under their respective purviews. These directives and other statements contain descriptions on how regulations and rules should be applied and specific market activities carried out. 1.

Fundamental Legislation

The fundamental legislation for the Myanmar bond market has traditionally consisted of the Myanmar Companies Act, 1914 and the Financial Institutions of Myanmar Law, 1990. Together, these laws formed the basic legal framework for the securities market and its components until passage of the Securities Exchange Law in July 2013. At the same time, with the help of the World Bank, CBM began the process of adapting the Financial Institutions of Myanmar Law, 1990 to the requirements of modern banking and the corresponding prescriptions of the new supervision regime, adequate roles and responsibilities of the financial institutions, and comprehensive descriptions of financial products and instruments. The result was the new FIL, which was promulgated in January 2016.14 In turn, the then Ministry of National Planning and Economic Development, which was later subsumed into the MOPF, began to review and rewrite, with technical assistance provided by ADB, the relevant corporate legislation in accordance with the needs of a modern economy, leading to a final draft version of a new companies law in 2016 and proposed Companies Rules.15 The New Myanmar Company Law was eventually enacted by Parliament on 6 December 2017 but will be enforced effective 1 August 2018. To improve Myanmar’s investment regime, the new Myanmar Investment Law, 2016, which merged with and replaced the Myanmar Foreign Investment Law, 2012 and the Myanmar Citizens Investment Law, 2013, was issued on 18 October 2016 and took effect in April 2017. Myanmar Companies Act, 1914 (revised by Act XIII, 1955) The Myanmar Companies Act, 1914 was designed for an economy and markets in another era. Its last major revisions occurred through Act XIII in 1955, with smaller updates in 1989 and 1991. However, after the promulgation of the New Myanmar Company Law, effective in August 2018, this act will be repealed. The act contains a number of basic provisions on securities and their issuance, including mentions of debentures and other relevant elements of today’s securities markets. These provisions are detailed below for easy reference.

14

See http://www.cbm.gov.mm/sites/default/files/regulate_launder/financial_institutions_law_updated_by_cbm_201 60303website-1_0.pdf 15 An unofficial translation of the New Myanmar Company Law (in its draft form before enactment) can be accessed on the Directorate of Investment and Company Administration website at http://www.dica.gov.mm/sites/dica.gov.mm/files/documentfiles/mcl_english_version_mpf_comments_oct_2016_clean.pdf

Legal and Regulatory Framework Part I: Preliminary—Definitions S2 (4) mentions “debenture,” including debenture stock. S2 (14) mentions a definition of prospectus. S2 (16) includes a definition of share(s). Part IV: Management and Administration—Prospectus Section (Article 92–100) S92 contains provisions and reference to debentures and underwriters. S92 stipulates only the issuing and filing of a prospectus. S93 (1A) refers to additional disclosure requirements (no detailed requirements). S96 (b) suggests securities can be privately placed without a prospectus: “It shall be lawful, in case, if it is shown that the form of application was issued without a prospectus in relation to shares or debentures which were not offered to the public.” S98A states that every document indicating an offer for sale to the public will be deemed a prospectus. S108 references the need to issue certificates, including for debentures. S126 (and subsequent articles) contains specific provisions for the issue of debentures. The provisions for the subscription of company issues appear to refer to both shares and bonds. Other provisions, in Part V of the Companies Act, are concerned with the winding up of companies and contain comprehensive bankruptcy and insolvency prescriptions. In addition, Part XA of the Companies Act features specific provisions for “Banking Companies.” From Article 277F onward, Banking Companies are identified as those in the business of, for example, issuing debentures and bonds, and conducting the promotion and underwriting of securities both in public and private forms. These provisions have since been replaced with the relevant prescriptions for banks and NBFIs, as well as other securities market participants, in the FIL (see next section) and the SEL (see section 2), respectively. Financial Institutions Law, 2016 The FIL was enacted as Law No. 20/2016 on 25 January 2016, replacing the previous Financial Institutions of Myanmar Law, 1990.16 The enactment of the FIL helped clarify the licensing of and activities to be carried out by banks and NBFIs in the Myanmar capital market. Under Section 52 (Permissible Banking Activities) of the FIL, commercial banks are permitted to engage in trading, for their own account or for the accounts of customers, in money market instruments such as cheques, bills, and certificates of deposit; 16 The text of the FIL is available at http://www.cbm.gov.mm/sites/default/files/regulate_launder/financial_institutions_law_updated_by_cbm_201 60303website-1_0.pdf

11

12

Myanmar

Bond Market Guide 2018 foreign exchange; currency forward and spot contracts; swaps and exchange and interest-rate instruments; and transferable securities. Commercial banks may also provide corporate advisory services, portfolio management and advice, and trustee services, as well as perform safe custody services. Through a separately incorporated subsidiary, a bank may also engage in securities brokerage. However, this separate entity would be subject to licensing and supervision by SECM, under the SEL and relevant regulations. 2.

Key Legislation for the Bond Market

The key legislation for the bond market in Myanmar is represented by the Government Securities Act and the SEL for the issuance of government and corporate debt securities, respectively. Government Securities Act, 1920 The principal basis for the issuance of government securities is the Government Securities Act, dating to 1920, established under the previous legal tradition. However, this law has not been actively used by the government for many years.17 Union Budget Laws (for each fiscal year) Instead, the actual issuance of government securities is anchored in the Union Budget Law for the respective fiscal year, which regulates government debt, the type of securities to be issued, and their proportion to each other and the overall budget. The most recent provisions are contained in the Union Budget Law, 2017 for fiscal year 2017/18. Securities Exchange Law, 2013 On 30 July 2013, the Union President signed the new SEL. The SEL was enacted to establish and regulate the securities market in Myanmar at large and its specific market segments.18 The SEL contains provisions to establish SECM and describe its roles and responsibilities, licensing for market participants, and sets the basic parameters for a vertically integrated exchange market and an OTC market, both of which were defined in greater detail in subsequent regulations. The law does not contain specific provisions for bonds or their issuance but does list a number of debt instruments in its articles; the debt instruments mentioned also include government securities. The law does not contain descriptions of disclosure requirements or rules regarding distinctions between public offers and private placements. There are no specific rules regarding a private placement other than those in the Companies Act and New Myanmar Company Law. Generally, the issue of securities not offered to the public is regarded as a private placement.

17 Government of the Union of Myanmar. 1920. Government Securities Act. http://www.myanmarconstitutionaltribunal.org.mm/lawdatabase/sites/default/files/myanmar_code/2016/03/10 -1920%20The%20Government%20Securities%20Act..pdf 18 See http://secm.gov.mm/wp-content/uploads/2015/12/4.SECM-Law-Latest-version-English.pdf

Legal and Regulatory Framework 3.

Rules

Key among the rules that were issued pursuant to key legislation are the SER published by the then MOF in July 2015. 4.

Regulations, Notifications, Instructions, and Other Directives

Regulations, notifications, instructions, and other such directives are issued by SECM and other regulatory authorities or market institutions for the markets and participants under their purview. SECM issues notifications on specific topics to interpret and complement the SEL and the SER. At the same time, SECM uses notifications to fill in details that are only generally referenced in the law and rules. This can range from prescribing the business hours for securities market participants to comprehensive provisions on disclosure requirements or documents. YSX issues regulations governing listing, trading, and post-trade activities on its securities market and for post-trade activities. YSX regulations, which are available in English and can be downloaded from the YSX website, are further referenced in the appropriate chapters and sections in this Bond Market Guide.19

D.

Myanmar Bond Market Regulatory Structure

The key policy body for legislation, regulations, and the development of the financial and capital markets, and the securities and bond market at large, is the MOPF.20 In addition, the recently established SECM is the key regulatory authority for the securities and bond market, while CBM governs banks and NBFIs as securities and bond market participants. The Directorate of Investment and Company Administration (DICA) is the corporate regulator and plays a significant role in admitting nonresident investors to the capital market in Myanmar and in policing their activities. 1.

Ministry of Planning and Finance

Renamed on 30 March 2016 as a result of the combination of the then MOFR and the Ministry of National Planning and Economic Development, MOPF has been the main body responsible for the administration of finances of the central government and for all economic and financial matters affecting the country. MOPF created and now supervises SECM, and remains the key policy body for legislation and the development of the bond market and the securities market at large. MOPF also houses the Treasury Department, which acts as the issuer of government securities, and the Debt Management Office, which is concerned with the administration of the outstanding government securities. For the roles and responsibilities of MOPF in the context of the issuance of government securities, please see Chapter III. 2.

Central Bank of Myanmar

With its separation from the then MOF, CBM became an independent central bank with the signing of the Central Bank of Myanmar Law by the Union President on 11 July 2013.21 CBM conducts monetary policy and pursues economic stabilization under its new mandate. The governor of CBM has the rank of minister in the Cabinet. 19

See https://ysx-mm.com/en/regulations/ysxregulations/ See http://www.mof.gov.mm/ 21 An unofficial translation is available at http://www.cbm.gov.mm/sites/default/files/cbm_law_unofficial_translation_29-7-2013_1.pdf 20

13

14

Myanmar

Bond Market Guide 2018 In the context of the financial markets, CBM supervises banks and NBFIs across their activities. CBM administers the FIL, which was enacted in January 2016, and defines the roles, functions, and permitted activities of banks and NBFIs in Myanmar vis-à-vis the SEL and the governance of the securities market by SECM (see also section C.1 in this chapter).22 With regard to the securities market, in addition to the powers provided in the Central Bank of Myanmar Law, CBM has the power under Section 134 of the FIL to regulate and supervise; monitor payment, clearing, and settlement systems; and provide for the settlement of securities in accounts maintained at CBM. Section 135 further stipulates that CBM may establish, operate, organize, promote, participate, and assist in the establishment, operation, organization, and promotion of, as well as regulate and supervise i.

ii. iii.

any system for the clearing and settlement of payments, and other arrangements for the making or exchange of payments in domestic or foreign currencies; any system for the clearing and settlement of securities and other arrangements for the exchange of securities; and any system to facilitate clearing and settlement, including other arrangements for the making or exchange of payments or the exchange of securities in any currency against other payments or securities in another currency.

For the roles and responsibilities of CBM in the context of the issuance, trading, and settling of government securities, please see the relevant parts of Chapters III and IV. 3.

Securities and Exchange Commission of Myanmar

The SEL prescribed the establishment of SECM under the governance of the then MOF. Pursuant to Chapter 3, Article 4 of the SEL, SECM was formed through Notification No. 64/2014 issued by the Government of Myanmar on 19 August 2014.23 SECM has seven members and is chaired by the deputy minister of the Ministry of Planning and Finance. SECM’s vision is stated as being “[t]owards a dynamic and regulated Myanmar securities market, developing together with the world’s.” It sees its mission as “maintain[ing] a fair, secured, liquid securities market raising and protecting the investors and the national economy.” Since being established, SECM has initiated the formation of laws, rules, notifications, and announcements on securities companies, listed public companies, and YSX. In its work, SECM is assisted by the Office of the Securities and Exchange Commission (SECM Office), which functions as its executive body. The SECM Office officially started operation on 24 February 2015 and comprises the following departments under the leadership of the Director General, who also acts as secretary of SECM, and the Deputy Director General: • • • • 22

Administration, Development and Policy, Market Oversight and Supervision, and Market Surveillance.

The text of FIL is available at http://www.cbm.gov.mm/sites/default/files/regulate_launder/financial_institutions_law_updated_by_cbm_201 60303website-1_0.pdf 23 Information adapted from SECM website is available at http://secm.gov.mm/en/securities-and-exchange-commission-of-myanmar/

Legal and Regulatory Framework

The SECM Office had a staff of 15 at its inception; this had risen to 59 by the end of August 2017. SECM maintains relationships with the Japan Financial Services Agency and Japan International Cooperation Agency, as well as with ADB and the Asian Bond Markets Initiative for support and technical assistance on capital and bond market development activities. SECM is also expected to sign memorandums of understanding with the International Finance Corporation and with the Securities and Exchange Commission of Thailand as part of its capacity building efforts. The duties and responsibilities of SECM Office include the following: i. ii. iii. iv. v. vi.

vii.

viii.

issue securities business license; issue permit of stock exchange; grant a permit of the OTC market for trading unlisted securities; submit necessary advice to the Government of Myanmar on matters relating to the securities business; supervise the securities business and carry out inquiries and inspections; supervise the following organizations and persons in accordance with the relevant Myanmar accounting standards: a) public companies; b) securities companies; c) OTC market; d) stock exchange; e) persons carrying out or who have carried out as responsible persons, members, staff, and agents of any public company, securities company, OTC market, or stock exchange; and f) license-holder or lawyer, auditor, and agent of such license-holder; carry out research and development for the securities business and communicate with organizations in other countries that supervise the securities business, and the businesses, departments, and organizations related to such organizations, to make the securities business in Myanmar compatible to international standards; and carry out other functions and duties assigned by the Government of Myanmar.

As prescribed in Section 23 of the SEL, SECM can issue specific business licenses for the following types of securities market participants: i. ii. iii. iv. v. vi.

securities dealing business license, securities brokerage business license, securities underwriting business license, securities investment advisory business license, securities company representative business license, and securities business license prescribed by notification issued by SECM.

Under further provisions, SECM may also issue other business licenses at its discretion. More detailed definitions of these types of licenses, the institutions that may apply for them, and the application requirements themselves are contained in the SER, issued on 27 July 2015, which at present are only available in the Myanmar language.

15

16

Myanmar

Bond Market Guide 2018 At this stage of development of the Myanmar capital market, SECM activities focus on i. ii. iii. iv. v. vi.

increasing the number of listed companies and encouraging these public companies to raise more capital; encouraging more investors to participate in the capital market; issuing securities business licenses to more securities companies; establishing the examination for securities business representative licenses for employees of securities companies; scrutinizing and approving prospectuses for listed companies wanting to issue shares; and educating the public, increasing knowledge of the stock exchange and the securities market at large, and creating awareness of capital market development.

The objective of SECM is to establish a fair, efficient, liquid, and transparent trading system in Myanmar. 4.

Directorate of Investment and Company Administration

DICA, now under the MOPF, is the corporate regulator. DICA was established on 13 October 1993. It administers and revises the Myanmar Companies Act, and serves as the government agency acting as the single point of contact for foreign direct investment-related matters. Foreign and domestic companies in Myanmar need to obtain approval from the Myanmar Investment Commission of DICA to start a business. DICA also sets and administers the rules for foreign investment in Myanmar. 5.

Yangon Stock Exchange

YSX was incorporated and registered by DICA in December 2014 and received its license for stock exchange activities from SECM in April 2015, pursuant to the provisions in Chapter VI (Stock Exchange) of the Law on Securities. YSX held its opening ceremony on 9 December 2015 and commenced listing and trading activities on 25 March 2016. YSX is a joint venture between MEB, the Daiwa Institute of Research, and the Japan Exchange Group. Under the stock exchange license, YSX issues regulations on the listing, trading, and post-trade activities on its market, and governs its members and participants. YSX is considered a self-regulatory organization (SRO) and is supervised by SECM. For detailed information on the regulations issued by YSX and its functions as an exchange market, please refer to Chapter IV and other relevant sections in this chapter.

E.

Regulatory Framework for Debt Securities

Article 5 (a) (ii) (A) and (B) of the New Myanmar Company Law stipulates that a company has the power to issue or offer for subscription debentures. This ability is augmented by the provisions for securities issuance in the SEL and the detailed prescriptions on the process and requirements in the SER. The issuance of debt securities, which is presently only in the form of public offers, is subject to SECM approval, while CBM may stipulate certain requirements specific to banks and NBFIs as issuers of debt securities only. Foreign investors need to obtain approval for market access from DICA and this access is expected to be further specified in upcoming regulations, while nonresident issuers are not yet able to participate in the Myanmar bond market.


In the event that a listing of securities is planned, YSX needs to review and approve the listing application based on its Securities Listing Business Regulations and other applicable prescriptions. The listing of debt securities is expected to be added to these regulations in future.

F.

Debt Securities Issuance Regulatory Processes

All issuances of securities require an approval from SECM. At present, the issuance of securities in Myanmar is only possible via a public offering, pursuant to the general provisions for securities issuance in the SEL and SER. Provisions for private placements are not yet contained in key legislation or applicable rules and regulations. At the time of completing this Bond Market Guide, the first priority for SECM was to establish a secondary market in government securities, which is to be followed by the establishment of a framework for the issuance and trading of corporate bonds and notes. This chapter will be updated in line with such developments occurring. At this point in time, securities may only be issued in Myanmar kyat. While there are no specific distinctions made in legislation or regulations between domestic and nonresident (foreign) issuers, at present only domestic issuers are able to issue securities. A subsequent listing of bonds and notes on YSX would be subject to a separate listing approval. 1.

Regulatory Processes by Issuer Type

Table 2.2 provides an overview of these regulatory processes by issuer type and identifies which regulatory authority or market institution will be involved. In order to make the issuance processes by issuer type more comparable across ASEAN+3 markets, the table features common issuer type distinctions that are evident in regional markets. Not all markets will distinguish all such issuer types or prescribe approvals. Sovereign issuers are typically exempt from corporate issuance approvals but, at the same time, may be subject to different regulatory processes. At present, all regulatory processes are geared toward the issuance of securities via public offers. In the absence of a framework for corporate bond issuance, CBM does not approve the issuance of bonds and notes by banks and NBFIs under its governance. Nonresident issuers are not (yet) able to issue bonds and notes in Myanmar, regardless of issuance currency. This is expected to change through legislation and regulations in the near future.

17

18

Myanmar


Table 2.2: Authorities Involved in Regulatory Processes by Issuer Type

Type of Issuer

SECM

CBM

YSX (listing only)

Resident issuer Resident nonfinancial institution

X

X

Resident financial institution

X

1

X

Resident issuing FCY-denominated bonds and notes

X

2

X

Nonresident nonfinancial institution

n.a.

n.a.

n.a.

Nonresident financial institution

n.a.

n.a.

n.a.

Nonresident issuing FCYdenominated bonds and notes

n.a.

n.a.

n.a.

Nonresident issuer

CBM = Central Bank of Myanmar, FCY = foreign currency, n.a. = not applicable, SECM = Securities and Exchange Commission of Myanmar, YSX = Yangon Stock Exchange. Notes: X indicates approval is required. 1 indicates that CBM approval may be required for issuers under its supervision once corporate bond framework has been established. 2 indicates that CBM approval may be required once issuance of bonds in foreign currency permitted. Source: ADB consultants for SF1.

2.

Regulatory Process Overview

Since SECM is still in the process of establishing a framework for corporate bond issuance, the description of the regulatory process below, provided as a point of reference, is based on the general prescriptions in the SEL and SER for all securities issuance. At the same time, the legal framework, as well as SECM and YSX regulations, already make reference to debt securities or do not specifically exclude debt securities from the prescribed regulatory processes. The regulatory process map shown in Figure 2.1 provides an overview of the regulatory process presently applicable in Myanmar; the actual regulatory process is explained in detail in section 4 of this chapter and in Chapter III.I for listing.


Figure 2.1: Regulatory Process Map—Debt Securities Issuance in Myanmar

CBM = Central Bank of Myanmar, DICA = Directorate for Investment and Company Administration, SECM = Securities and Exchange Commission of Myanmar, YSX = Yangon Stock Exchange. Note: While the listing of debt securities is shown as an optional process, listing approval from YSX is not optional in the event a listing is applied for. Source: ADB consultants for SF1.

Under the SEL, and pursuant to SECM Notification on Public Offering (2/2015), the issuer is responsible for the compilation of the prospectus and related information and the submission of such materials to SECM. The issuer also needs to appoint an underwriter—in Myanmar referred to as a securities agent or representative—for a public offer of securities. The underwriter (securities agent or representative) and any appointed securities sub-distributors (selling agents) need to hold a valid corresponding license issued by SECM. An underwriter (securities agent or representative) may aid in the compilation of the prospectus and related materials for submission to SECM, but the issuer remains responsible for documentation and their submission under the regulations. Since present regulations prescribe the issuance of securities only in the form of a public offering, there is presently no further distinction necessary between different approval processes in the Myanmar market. A listing of securities issued via a public offer is optional. In case a listing is intended, an underwriter (securities agent or representative) may be used to help compile and submit the listing application, supporting documentation, and other information required by YSX.

19

20

Myanmar

Bond Market Guide 2018 3.

Regulatory Process in Case of a Nonresident Issuer

At present, nonresident issuers are not yet able to access the Myanmar bond market in the absence of specific provisions regulating their participation. 4.

Regulatory Process for Public Offers

The issuance of securities, including debt securities, is prescribed in the New Myanmar Company Law and the SEL, and further detailed in Chapter V (Securities Issuing) of the SER. In turn, SECM Notification on Public Offering (2/2015) prescribes the actual regulatory process for public offers, including the submission of required documentation and information and obtaining approval for such issuance. Offers of securities to the public require the approval of SECM. The key document for submission, together with the application for approval of an issuance, is the prospectus, which follows specific forms and contents set forth by SECM. Initial and continuous disclosure requirements are also defined in the Myanmar Companies Act (in future, the New Myanmar Company Law), the SER, and SECM Notifications. Each prospectus also needs to be submitted to DICA, as the corporate regulator, under separate provisions of the Myanmar Companies Act. The prospectus and other relevant disclosure information must be in the Myanmar language and may also be provided as an English translation. The following steps describe the actions to be undertaken by the issuer to obtain approval from SECM for a public offering. If the issuer uses a securities agent—the equivalent of an underwriter or arranger in Myanmar market terminology—such a securities agent may aid in the compilation of the prospectus and additional information. However, the discharge of obligations under securities issuance regulations remains solely with the issuer. Step 1—Approval Application and Submission of Prospectus to the Securities and Exchange Commission of Myanmar SECM requires the issuer to complete a physical application form requesting approval for the issuance of securities via a public offer. Together with the application form, the issuer needs to submit the prospectus for the securities to SECM. The prospectus, and any other supporting documents, may only be submitted in printed form. The prospectus follows the format prescribed by SECM in Instruction 05/2016 (Use of Prospectus Format for Public Offering) and needs to include (i) procedures of the public offering; (ii) information of the public offering; (iii) information of the securities to be offered; (iv) information of the issuer; (v) a summary of the company’s affairs including the information about the history and development of the company, its related companies, and its employees; (vi) a business overview including the performance of the company’s business, principal activities and principal markets, principal risks and uncertainties facing the company, material contracts, and research and development; (vii) a statement of the company’s investment plan; and

Legal and Regulatory Framework (viii) a statement of the company including the information about major shareholders, dividend policy, organizational structure, and management system. Together with the prospectus, the following documents shall be submitted by the issuer in physical form: (i) a copy of its memorandum and articles of association; (ii) a copy of its audited balance sheet and profit-and-loss account in each of the past 2 financial years, or a 5-year business plan instead of documents mentioned if it was a start-up company before the issue of the prospectus; (iii) a copy of the auditors' report attached to the balance sheet and profit and loss account (if available); (iv) a copy of its directors' report under Section 131 (A) of the Myanmar Companies Act (if available); (v) a copy of the resolution of the annual general meeting of shareholders, of the extraordinary general meeting of shareholders, or of the board of directors or the decision of the directors in relation to the issue of securities concerned (if available); and (vi) a copy of a document that shows the respective authority's approval of a capital increase and/or a change in capital structure. Article 6 of SECM Notification 02/2015 prescribes that if after a public offering is approved by SECM but before the close of the public offering, the issuer becomes aware of the following points, the issuer shall lodge supplementary documents with SECM: (i) a false or misleading statement in the prospectus; (ii) an omission from the prospectus of any information that should have been included in it; or (iii) a new circumstance that has arisen since the prospectus was submitted to SECM and that is materially adverse to investors. Step 2—Approval from the Securities and Exchange Commission of Myanmar SECM will review the application form, prospectus, and supporting documents and provide approval if it is satisfied with the prospectus and all submitted information. SECM may also, at its discretion, request additional information from the issuer to complete its review of the application. The statutory review period is 60 days from receipt of complete documentation. SECM will notify the issuer of its decision in writing, stating approval or reasons for a rejection, or any possible qualification attached to an approval. There is no specific validity period for SECM’s approval and there is no fee levied by SECM for the review of the application and approval process. In the event that the issuer sees the need to issue a new prospectus or amend the existing prospectus or any relevant information referred to in the prospectus, a new approval will need to be sought from SECM. In the event that an issuance goes ahead, the prospectus itself does not need to be updated. Instead, the issuer will have to observe the prescribed continuous disclosure requirements defined in the SER and, if listed, under the YSX Securities Listing Business Regulation.

21

22

Myanmar


Step 3—Submission of Prospectus to the Directorate for Investment and Company Administration Following the approval of the prospectus by SECM, the issuer is required to comply with the Myanmar Companies Act (in future, the New Myanmar Company Law) by submitting the prospectus for the securities to be offered to DICA as the corporate regulator. Step 4—Publication of Prospectus Once SECM approval is obtained and the prospectus filed with DICA, the issuer is required to publish the prospectus through one or more of the following: (i) procuring newspaper ads, (ii) making available the prospectus to the public—free of charge—in printed form at its official premises, and/or (iii) a posting on its website. The prospectus shall not be published until the issuer has obtained SECM approval (Article 8 of SECM Notification 02/2015). Steps 5, 6—Listing Application and Listing Approval (Optional) The listing of securities issued via a public offer is optional, but may only be undertaken once steps 1–4 above have been completed. For a more complete explanation of the listing process, kindly see Chapter III.I. 5.

Regulatory Process for Bonds and Notes Aimed at Professional Investors or for Private Placements

The present regulatory framework for the Myanmar securities market does not yet provide for the distinction of professional investors from general investors. As such, there are no specific regulatory processes for offers of securities to professional investors or the offer of securities via a private placement. 6.

Obligations after Approval and after Issuance

Post-issuance reporting obligations apply to public offers only and are detailed below. a.

Public Offers

Article 4 of SECM Notification 02/2015 prescribes that the issuer is required to submit to SECM the result of the public offering immediately upon its conclusion. SECM is preparing to issue a notification on the timeframe, specific reporting requirements, and other details in due course. b.

Offers to Professional Investors and Private Placements

Offers to professional investors or via private placement are not yet applicable in the Myanmar bond or securities markets. 7.

Issuance Process Specific for a Domestic Financial Institution

In the absence of a regulatory framework for corporate bond issuance, CBM does not (need to) approve the issuance of (debt) securities by a domestic bank or NBFI under its supervision.

Legal and Regulatory Framework This requirement may be introduced once the corporate bond issuance process has been established by SECM since provisions in the FIL convey the power to CBM to regulate the activities of its constituents. 8.

Regulatory Process for Foreign-Currency-Denominated Debt Instruments

At present, the issuance of debt securities—in fact all securities—in Myanmar is only possible in Myanmar kyat. As such, no approvals are applicable for foreign-currencydenominated securities.

G.

Continuous Disclosure Requirements in the Myanmar Bond Market

At present, continuous disclosure requirements have been defined for the issuance of securities via a public offering and those securities that are listed on YSX. 1.

Public Offers

Continuous disclosure requirements for securities issued via a public offering are prescribed in the SER and have been further stipulated by SECM in its Notification 01/2016, dated 19 February 2016. The notification puts disclosure obligations on the issuers of securities or public companies, if (i) the issuer is a listed company; (ii) the issuer’s securities are traded in the OTC market; (iii) the issuer obtained SECM approval for the issuance of securities; or (iv) the issuer is a public company with more than 100 shareholders. The issuers (or public companies) will need to submit to SECM annual reports, biannual reports, and so-called extraordinary reports, as may be required. Extraordinary reports refer to a submission to SECM if any of the following events apply to the issuer or public company, or any of their significant subsidiaries: i. ii. iii. iv. v. vi. vii.

viii. ix.

x. xi.

change of its parent company or its subsidiary company; change of its major shareholders (ownership of more than 20% of voting rights of equity interest of the company); occurrence of a disaster from which the business of the company is suffering; filing or settlement of a material lawsuit claiming damages against the company; transfer of the company's material undertakings to another person or transfer of material undertakings from another person to the company; change of a managing director or manager of the company; a resolution of the annual general meeting or extraordinary general meeting of shareholders, other than a resolution approving the company's financial statements at an annual general meeting; change of an auditor of the company; filing of a petition against the company for any compulsory winding up, company voluntary arrangements, or compromise under the supervision of a court or arrangement with its creditors generally or any class of its creditors; voluntary winding up or dissolution of the company; failure to pay or occurrence of a concern for failure to pay a significant amount of the company's pecuniary claims by a debtor of the company or a debtor whose debt is guaranteed by the company; or

23

24

Myanmar

Bond Market Guide 2018 xii.

occurrence of a matter or an event which falls under the subsequent events under the applicable accounting principles.

Article 4 in Notification 01/2016 also stipulates the specific information requirements that apply for each of the potential events mentioned above. If the issuer of (debt) securities or a public company submits an extraordinary report to SECM, it is required to explain the details of the report to SECM before the report may be published. At the same time, if a listed company intends to make a timely disclosure in accordance with the YSX Securities Listing Business Regulations, the listed company is required to notify SECM of such disclosure before it is disclosed to YSX. 2.

Offers to Professional Investors or Private Placements

Offers to professional investors, or the issuance of securities via private placement, are not yet applicable in the Myanmar bond or securities market. 3.

Securities Listed on the Yangon Stock Exchange

While the YSX Securities Listing Business Regulations do not presently specifically mention debt securities, it is for the purpose of this Bond Market Guide assumed that the prescriptions for continuous disclosure would apply to the issuers of all listed securities, once debt securities are listed on YSX. Sections 14 and 15 of the YSX Securities Listing Business Regulations contain the provisions for continuous disclosure for the issuers of listed securities. According to these provisions, issuers must immediately disclose details of such fact (1) where the body that decides the listed company's business execution has made a decision on important matters regarding the operation, business, assets, or stock of such listed company, which have a considerable impact on investment decisions; or (2) where any other important fact regarding the operation, business, assets, or stock of the listed company has occurred, and such fact has a considerable impact on investment decisions; Taking into consideration the criteria for such disclosure, as defined in Section 16 of the regulations, companies that have listed their securities on YSX are also required to submit their earnings information immediately after such information is concluded. The information mentioned above is expected to be explained to YSX prior to a public announcement. Such disclosure information and details to be submitted to YSX are also required to be submitted to SECM prior to any such announcement, pursuant to SECM Notification 01/2016 (see also section 1 above). Submission of the information or a formal announcement to YSX may be done in an electronic format prescribed by YSX. In turn, YSX will post such information or announcements on its website. On a case-by-case basis, YSX may also determine other forms of submission, if the website cannot be used or other practical considerations exist.

Legal and Regulatory Framework The disclosure information submitted by listed companies is available, typically in both the Myanmar language and English, for public viewing and downloads of PDF files from the YSX website under each listed company’s profile.24

H.

Self-Regulatory Organizations in the Myanmar Bond Market

YSX is an SRO. Pursuant to the SEL, and corresponding SECM notification, YSX fulfills the role of an exchange-type SRO and is able to issue regulations on the listing and disclosure, trading, and post-trade activities on its markets. YSX also governs admittance to, and membership or participation in, its markets. At the same time, its regulations are subject to SECM approval prior to publication. YSX governs its members through the Trading Participant Business Regulations and its corresponding Enforcement Regulations. A Trading Participant is the only membership type (and is defined as an entity) that holds a trading qualification to trade securities on the exchange market. YSX sets the criteria for obtaining such a trading qualification and requires an applicant to hold one of the licenses specified in Article 23 of the SEL to be eligible (see also next section). The Trading Participant Business Regulations and corresponding Enforcement Regulations are available for download (in English only) from the YSX website.25 As of August 2017, YSX had admitted six securities firms as Trading Participants. For details on the listing, disclosure, and trading rules of YSX and their underlying regulations, please refer to section J in this chapter. For a list of the regulations issued by YSX, please refer to Appendix 2.

I.

Rules Related to Licensing

The licensing of market participants in the securities market in Myanmar, including for the bond market, falls under the principal purview of SECM. In addition, CBM administers the FIL, which permits commercial banks to participate in the bond market without obtaining a separate license from SECM. a.

Market Participants with Securities Business Licenses

Pursuant to Article 23 of the SEL, SECM approves and licenses securities market participants under one of the following licenses available to conduct securities related businesses: (a) securities dealing business license; (b) securities brokerage business license; (c) securities underwriting business license; (d) securities investment advisory business license; (e) securities company’s representative business license; and (f) securities business license prescribed by notification issued by [SECM]. These licenses are in addition to the separate license for a stock exchange or a dedicated over-the-counter market stipulated in the SEL.

24

For an example of the disclosure documents furnished by a listed company, please see https://ysxmm.com/en/listing/company/lc00001/ 25 See https://ysx-mm.com/wp-content/uploads/2016/06/ysxr05_en_032016_02.pdf

25

26

Myanmar

Bond Market Guide 2018 A limited exception applies to commercial banks who, as a result of having obtained a banking license from CBM, may already participate in certain specified activities in the bond market—or interbank and money market—under such license (see section b for details.) Under further provisions in the SEL and SER, SECM may also issue other business licenses for the securities market at its discretion. b.

Market Participants with Banking License

Commercial banks are permitted under Section 52 (Permissible Banking Activities) of the FIL to engage in trading, for their own account or for the account of customers, in money market instruments such as cheques, bills, and certificates of deposit; foreign exchange; currency forward and spot contracts, swaps and exchange and interest-rate instruments; and transferable securities. These activities are typically confined to the interbank or money market. Commercial banks may also offer trustee services, as well as perform safe custody services without obtaining a separate license. However, if commercial banks want to engage in any of the regulated securities businesses (see section a), they will need to apply to SECM for the appropriate licenses. Likewise, in the event that commercial banks or NBFIs wish to engage in activities in the secondary securities market, including the buying and selling of equity and debt securities approved by SECM, they must obtain a securities business license to do so. As such, it is envisaged that commercial banks may engage in securities brokerage through a separately incorporated subsidiary. Such a separate entity would be subject to the licensing requirements imposed by SECM, pursuant to the SEL, SER, and Securities Company Regulations (SECM Notification 02/2016). For details, please see section a above. c.

Market Conventions and Best Practices

In line with the status of the development of the Myanmar bond market, and the securities market at large, market conventions are still being formed and best practices are in the process of being established, as market participants learn to practically apply rules and regulations in day-to-day business.

J.

Yangon Stock Exchange Business Regulations Related to Listing, Disclosure, and Trading of Securities

Pursuant to the SEL, and as conferred to YSX by SECM, it may govern its markets and its participants through the issuance of its own rules for the listing and disclosure requirements, as well as trading, clearing, and settlement practices, subject to the approval of SECM (see also section H). In the context of terminology used in the Myanmar market, and to distinguish the nature of the prescriptions from those of SECM, YSX rules are referred to as “business regulations.” The contents of the regulations are available as PDF files in English from the YSX website and are listed for easy reference in Appendix 2.26

26

See https://ysx-mm.com/en/regulations/ysxregulations/

Legal and Regulatory Framework a.

Listed and Traded Securities

Securities listed and traded on YSX are subject to the YSX Securities Listing Business Regulations and Trading Business Regulations and their corresponding Enforcement Regulations, respectively. The Securities Listing Business Regulations govern the listing process, eligibility criteria, and fees, the initial and continuous disclosure requirements, and interactions between YSX, the listed company, and the general public. The regulations also prescribe that the issuer is to appoint YSX as the provider of “shareholder services,” also referred to as “shareholder agency,” for which YSX has issued business regulations. The securities listing process is further explained in detail in Chapter III.I. The Trading Business Regulations defines trading hours, matching methods, and order types, and describe the auction trading concept applied by YSX. At the time of completion of this Bond Market Guide, Section 5 of the regulations still described the securities eligible for trading as equities only. For further details on the trading of securities, please refer to Chapter IV. b.

Trading Participants

In turn, the Trading Participant Business Regulations and the corresponding Enforcement Regulations govern the eligibility criteria (referred to as “trading qualifications”), obligations, participation, and conduct of trading participants on YSX, as well as potential disciplinary measures against them.

K.

Market Entry Requirements (Nonresidents)

At the time of completion of this Bond Market Guide, foreign (nonresident) issuers and investors did not yet participate in the securities market to issue or invest in securities in Myanmar. At the same time, foreign (nonresident) investors can participate in the Myanmar securities market, pursuant to the laws and regulations of the relevant ministries and regulatory authorities, here the MOPF and SECM, respectively. While applicable market entry requirements for foreign (nonresident) issuers or investors have not been defined, present legislation and regulations do not specifically mention restrictions for foreign (nonresident) issuers or investors with regard to the securities market, while detailed regulations for foreign direct investment in Myanmar have existed for some time. In fact, foreign (nonresident) issuers are even referenced in the SEL (see below). 1.

Nonresident Issuers

According to Article 2(a)(ii) of the SEL, the definition of “securities” includes “treasury bills, treasury bonds, bonds and debentures issued by the international organizations, foreign governments and their institutions.” As such, nonresident issuers—possibly of certain eligibility—are principally able to participate in the market. However, in consideration of the practiced approach to further define specific securities issuance prescriptions in the SER, and to detail such prescriptions in the form of SECM notifications, the absence of the above leads to the general understanding that nonresident parties may not yet be active participants in the Myanmar securities market.

27

28

Myanmar


2.

Foreign Investors

Foreign investors are principally able to participate in the Myanmar bond market and the securities market at large. However, foreign investors are not yet able to engage in domestic securities market activities until such actions are explicitly set in forthcoming regulations. In addition, foreign investors need to obtain approval from the Myanmar Investment Commission of DICA prior to commencing investing in Myanmar.

L.

Market Exit Requirements (Nonresidents)

The existing legislation and rules for the bond and securities markets do not contain specific provisions for, or an exclusion of, foreign issuers and investors. 1.

Nonresident Issuers

In the absence of specific rules and regulations for nonresident issuers, market exit requirements have not been defined. 2.

Foreign Investors

Prevailing laws and regulations do not contain specific provisions for exit requirements for foreign investors.

M.

Regulations and Limitations Relevant for Nonresidents

The applicable regulations and possible limitations for nonresidents are briefly provided below and grouped according to some of the key topics of interest for nonresidents. 1.

Direct Investment

To improve Myanmar’s investment regime, the Myanmar Investment Law, 2016 outlines the provisions for direct investment by foreign investors. According to the law, a foreign investor is a person who invests within the Union and is not a citizen. In this expression, foreign companies, branch offices, and other enterprises established and registered in accordance with the Myanmar Companies Act and enterprises formed in accordance with the laws of any other country are also included. According to the rules of the Myanmar Companies Act, 1914, a company is currently defined as “foreign” if even one share is held by a foreigner. As the Myanmar Companies Act, 1914 is presently also under review, a company will in future only be considered foreign if a certain percentage of shares is owned by a foreign investor. 2.

Cross-Border Portfolio Investment

Investors wishing to access the Myanmar bond or securities market require approval from DICA, as the government portal for all investments in the country. Foreign investors must undertake a company registration (for a domestic subsidiary) and/or obtain a permit to commence activities in the Myanmar domestic market.

Legal and Regulatory Framework 3.

Currency Exchange Controls

The Myanmar kyat, which is pronounced “chat” and abbreviated in official documents as “K”, is nonconvertible and nonnegotiable outside Myanmar. The import and export of kyat banknotes is prohibited. Foreign exchange forwards and swaps involving the Myanmar kyat are not permitted at this time. 4.

Bank Accounts in Domestic or Foreign Currency

Nonresident domestic currency accounts with licensed banks in Myanmar are permitted upon CBM authorization. Nonresident foreign currency accounts of international organizations and diplomatic missions may be kept with the Myanmar Foreign Trade Bank. Prior approval from CBM is required for other nonresidents. 5.

Borrowing and Lending

Domestic borrowing and lending in local currency must be conducted through CBMauthorized intermediaries. Domestic borrowing in foreign currency is not allowed.

N.

Regulations on Credit Rating Agencies

There are presently no credit rating agencies operating in Myanmar. At present, SECM is focused on improving corporate governance standards among listed companies, as well as in view of potential listing candidate companies, before incorporating such standards and requirements into regulations for credit ratings and credit rating agencies.

29

Characteristics of the Myanmar Bond Market The Myanmar bond market is at a nascent stage of development, with issuance limited to government securities and a corporate bond market only now being envisaged. At the same time, the Myanmar securities market as a whole has made enormous strides in the last few years and is expected, under the leadership of MOPF and SECM, to develop quickly and strongly in the near future. As such, existing or envisaged characteristics specific to the Myanmar bond market are described in more detail in this chapter.

A.

Definition of Securities

The current fundamental and key legislation does not contain a consolidated definition of securities. Instead, securities are mentioned (and some examples are given) in a number of places in the legislation. 1.

Reference in the Securities Exchange Law

Chapter 1, Article 1 of the SEL contains references to certain securities, as follows: The expression “Securities” includes the following: (i) Treasury bills (T-bills), T-bonds, bonds, and debentures issued or arranged to issue by the government or any governmental organization; (ii) T-bills, T-bonds, bonds, and debentures issued by international organizations, foreign governments, and their institutions; (iii) shares, stocks, bonds, and debentures issued or arranged to issue by the public companies and rights, options, and warrants relating to such shares, stocks, bonds, debentures; and (iv) other securities and instruments prescribed by notification as securities by [SECM]. The SEL also makes mention of or defines the securities business activities for which licenses are required, as well as the terms “Securities Market” and “Over-the-Counter Market.” 2.

Reference in the New Myanmar Company Law

Article 60(a) of the New Myanmar Company Law stipulates that the shares or other securities of any member in a company shall be moveable property, transferable in the manner provided or permitted by this law and any other applicable law, and subject to the constitution of the company.27 27 Please see http://www.dica.gov.mm/sites/dica.gov.mm/files/documentfiles/mcl_english_version_mpf_comments_oct_2016_clean.pdf

Characteristics of the Myanmar Bond Market

B.

Types of Bonds and Notes

The Government of Myanmar has been issuing securities since 1993. At present, corporate debt securities are not yet being issued in Myanmar. However, the promulgation of the SEL and subsequent rules, regulations, notifications, and guidelines are expected to create the necessary and practical legal and regulatory environment for corporate bond issuances. At present, the issuance of debt securities in Myanmar is limited to Myanmar kyat only. 1.

Bonds and Notes issued by the Government

Until 2013, government securities were issued by CBM upon instructions from the then MOF. In line with the clarification of the roles of government institutions, CBM was made independent from MOF under the Central Bank Law, 2013 and has been concentrating on monetary policy and economic stabilization since then. Instead, MOF, which is now the MOPF, created a Treasury Department in fiscal year 2014/15, which took over the responsibility of issuing government securities from CBM. The MOPF has also established a Debt Management Office as part of the Treasury Department, which administers outstanding government securities. However, CBM retains the role of issuing agent. At present, the required amount of government securities to be issued is divided equally (50% each) between T-bonds and T-bills, in line with International Monetary Fund Article 4 recommendations. A Treasury Securities Steering Committee and Treasury Securities Working Group Committee will be formed by including officials from the MOPF and CBM to discuss the conduct of securities auctions in future. a.

Treasury Bonds

T-bonds are issued at face value in Myanmar kyat only. CBM began issuing 3year and 5-year T-bonds in denominations of MMK10,000 and MMK100,000 on 1 December 1993 in Yangon and on 1 January 1994 in Mandalay to promote public saving and the eventual establishment of a capital market in Myanmar. Moreover, 3-year T-bonds in denominations of MMK1 million were first issued on 1 April 1996 and 5-year MMK1 million T-bonds were first issued on 1 January 1997. Since 1 January 2010, 2-year T-bonds in denominations of MMK10,000, MMK100,000, MMK1 million, and MMK10 million have been issued to the public. (For reference, the official exchange rate on 31 August 2017 was MMK1,360 per USD1.) T-bonds are intended for sale to financial institutions, state institutions, other institutional investors, and retail investors. T-bonds are presently issued with tenors of 2, 3, and 5 years, and carry interest rates typically slightly above the official interest rate for savings accounts in order to increase their attractiveness. As of August 2017, interest rates by maturity were as follows: 8.75% for 2-year, 9.0% for 3-year, and 9.5% for 5-year maturities.28 The Treasury Department is planning to issue longer-tenored T-bonds in the near future, per discussions with ADB and representatives of the Asian Bond Markets Initiative. With the commencement of the issuance of T-bonds via auction (see also section E), the government is aiming to create larger issue sizes, with the intention of offering benchmark bonds, which later may be used as a reference for the interest-rate environment in the market. 28 Please see the CBM website for current rates at http://www.cbm.gov.mm/content/issuance-governmenttreasury-bonds

31

32

Myanmar


T-bonds can be utilized by financial institutions to obtain short-term funding from CBM under the existing discount window, in part to maintain minimum reserve requirements. In principle, T-bonds are also tradable between investors (please refer to Chapter IV for more details). b.

Treasury Bills

Under the present budget management framework, T-bills are issued exclusively to CBM, which, in turn, prints currency to pay the government for the issued T-bills. T-bills had an original tenor of 3 months, with a fixed interest rate of 4%, from 1990 to March 2016. Since 2015, T-bill auctions have included 3month, 6-month, and 12-month tenors. From April 2016, the marketable interest rate is applied for 3-month T-bills for CBM’s financing of the government deficit starting for fiscal year 2016/17 and the weighted interest rate is between 7% to 9% per annum. T-bills are tradable by CBM using the discount window. 2.

Characteristics of Government Securities

Both T-bonds and T-bills were originally issued as physical securities on securityprinted paper. However, after CBM launched its CSD, book-entry record keeping, and RTGS systems in 2016, T-bond and T-bill issuance moved to a scripless basis. As such, the OTC sale of physical certificates at issuing agents is no longer practiced (please see Section C). 3.

Bonds and Notes Issued by the Corporate Sector

At this point in time, no specific rules or regulations exist for the issuance of corporate bonds. While the SEL mentions different types of bonds, there is no definition of an asset class or a term for corporate bonds, and no mention of detailed treatment or activities specific to bonds not issued by the government. In addition, YSX, while principally in a position to include debt securities on its markets (see also Chapter IV), has not defined corporate bonds as eligible instruments in its business regulations. However, the ability to issue corporate debt securities is included in the Capital Market Development Committee’s plan for the Myanmar bond market. SECM is also seeking to create a secondary market for debt securities on YSX. As such, SECM is studying best practices with regard to policy implementation for the issuance of corporate bonds. 4.

Issuance Programs

At present, issuance programs for debt securities do not exist in the Myanmar bond market. This also because some of the more fundamental prerequisites for the issuance of corporate bonds would need to be in place prior to the commencement of issuance programs.

C.

Money Market Instruments

Money market instruments are short(er)-term debt instruments, typically T-bills issued by the Government of Myanmar. Money market instruments are generally limited to instruments with a maturity of less than 1 year.


1. a.

Issued by the Government of Myanmar Treasury Bills

The Treasury Department of the MOPF issues T-bills with 3-month tenors exclusively to CBM, which, in turn, prints currency to pay the government for the issued T-bills. At the same time, T-bills with tenors of 6 months and 12 months are tradeable by CBM through the discount window. 2.

Issued by the Corporate Sector

There are presently no money market instruments issued by the corporate sector.

D.

Segmentation of the Market

To provide a better illustration of the segmentation of the existing types of debt securities issued to the market in Myanmar—consisting of only T-bonds at this point in time—Table 3.1 gives an overview of outstanding values of T-bonds in selected years, as well as the bondholder distribution at the time. Table 3.1: Segmentation of the Market—Outstanding Value of Government Treasury Bonds for Selected Years (MMK million) Type of Government T-Bond and Bondholders

2015 Amount

2016 %

Amount

2017 %

Amount

%

2-Year

516,263

100.00

365,590

100.00

340,815

100.00

Public

85,613

16.58

38,940

10.65

14,815

4.35

Private Enterprises

430,650

83.42

326,650

89.35

326,000

95.65

3-Year

569,525

100.00

533,299

100.00

390,024

100.00

Public

109,475

19.22

111,649

20.94

12,374

3.17

Private Enterprises

460,050

80.78

421,650

79.06

377,650

96.83

5-Year

1,814,685

100.00

1,715,839

100.00

1,453,482

100.00

Public

25,155

1.39

30,489

1.78

25,132

1.73

1,789,530

98.61

1,685,350

98.22

1,428,350

98.27

Private Enterprises

Notes: Data for T-bonds not issued at auction. All figures as of the end of March. Source: Central Bank of Myanmar.

33

34

Myanmar

Bond Market Guide 2018 In contrast, Table 3.2 offers a breakdown of the outstanding amounts and bondholder distribution for T-bonds issued at auction, which are those T-bonds issued between September 2016, when T-bond auctions commenced, and the end of that same fiscal year on 31 March 2017. Table 3.2: Segmentation of the Market—Outstanding Value of Government Treasury Bonds Issued at Auction (MMK million) Type of Government T-Bond and Bondholders

Nominal Interest Rate at 9.0% Amount

Public

%

Nominal Interest Rate at 9.25% Amount

Nominal Interest Rate at 9.5%

%

Amount

%

0

0.00

500

0.07

500

0.3

Private Enterprises

320,000

100.00

719,170

99.93

159,500

99.7

Total

320,000

100.00

719,670

100.00

160,000

100.00

Note: Data for T-bonds issued at auction only (in the course of fiscal year 2016/17). Source: Central Bank of Myanmar.

Detailed information on the outstanding values of T-bonds and T-bills, new issuances per period, and government securities in Myanmar can be found on the CBM website.29 Appropriate links are also provided in Chapter VII and Appendix 1 of this Bond Market Guide.

E.

Methods of Issuing Bonds and Notes (Primary Market)

T-bonds and T-bills are issued via a number of methods, chief among them being an auction. The introduction of a primary dealer concept may be considered at a later stage. The SEL, SER, and subsequent regulations prescribe that private sector securities be issued through a public offering only, with the approval of SECM required in every instance. At present, government bonds are only being issued in Myanmar kyat. 1.

Government Securities

At the present time, government securities in Myanmar are issued to investors through the methods described below. Following comprehensive study and consultations, which included discussions with ABMF, ADB, and the International Monetary Fund, CBM introduced an auction concept in August 2016. CBM conducts auctions as part of its domestic market operation. CBM may conduct auctions for its own securities and those of the Government of Myanmar. a.

Direct Issuance

Previously, the principal method of issuance of government securities, in particular T-bonds, was direct issuance to interested and eligible investors in the market, mostly in the form of physical certificates. Since 2010, CBM has sold directly to financial institutions, while MEB and MSEC sell directly to institutional and individual investors. T-bills are issued to and kept by CBM. These T-bills are tradable by CBM through the discount window.

29

See the Government Securities tab on http://www.cbm.gov.mm

Characteristics of the Myanmar Bond Market b.

Issuance via Competitive Auction

Effective August 2016, CBM published operations procedures for the conduct of auctions for T-bonds and T-bills. Article 40(p) of the Central Bank of Myanmar Law, 2013 authorizes CBM to conduct auctions and Article 121 authorizes it to issue procedures for the conduct of such auctions. The first-ever auction of Tbonds was conducted on 20 September 2016. Regular auctions are expected to be conducted on a monthly basis. Only financial institutions registered as counterparties with CBM are eligible to tender bids for the auctions. Bidders need to have an account with the CBM settlement system to register as bidders. Such registration enables bidders to participate in securities auctions, deposit auctions, buybacks, repurchases, switch auctions, and credit auctions. Bidders may register for either competitive auctions or noncompetitive auctions. The auctions will be held on a multiple-price basis. The minimum face value of each competitive bid must be MMK500 million, with multiples of MMK100 million allowed thereafter. Each successful competitive bidder will be allocated securities at the yield at which it bid. Each successful noncompetitive bidder will be allocated securities at the market-value weighted average of successful bid yields in the competitive bidders’ pool. Auction results will be announced by 2 p.m. on the day of the auction via a combination of electronic media and the CBM website. Settlement for all securities issued at auction is on auction date +2 banking days. Settlement is via the CBM’s settlement system, CBM-NET. A detailed description of the current auction procedures for government securities, Domestic Market Operations: Securities Auction Procedures, is available on the CBM website.30 c.

Issuance via Noncompetitive Auction

CBM reserves the right to bid as a noncompetitive bidder in auctions of government securities when it is acting as an agent on behalf of the Government of Myanmar. The minimum face value of noncompetitive bids must be MMK500 million, with multiples of MMK100 million allowed thereafter. The auctions will be held on a multiple-price basis. Each successful noncompetitive bidder will be allocated securities at the market-value weighted average of successful bid yields in the competitive bidders’ pool. Auction results will be announced by 2 p.m. on the day of the auction via a combination of electronic media and the CBM website. Settlement for all securities issued at auction is on auction date +2 banking days. Settlement is via CBM-NET. A detailed description of the auction procedures for government securities, Domestic Market Operations: Securities Auction Procedures, is available on the CBM website.

30 See http://www.cbm.gov.mm/sites/default/files/finance_mark/cbmsecuritiesauctions_proceduresaug20164.0_0.p df

35

36

Myanmar

Bond Market Guide 2018 d.

Underwriting in the Context of Government Securities

Since January 2010, CBM has authorized a number of branches of state-owned MEB and the joint venture securities company MSEC to issue T-bonds on its behalf. This practice is known in the domestic market as “underwriting.” As such, MEB and MSEC act as underwriters or, in fact, as issuance agents on behalf of the government. 2.

Securities issued by the Private Sector

Under prevailing rules and regulations, the only issuance method for securities available in the market is via a public offer. a.

Public Offer

Corporate bonds are not yet being issued in Myanmar but the regulatory framework for public offers of securities is already in place. The SEL and other regulations mention debt securities, while issuance regulatory processes do not specifically exclude debt securities. The process prescribed is that of a public offer. As such, the market is waiting for input from policy bodies and regulatory authorities on the commencement of the corporate bond market. For details of the regulatory process for the issuance of securities via a public offer, please refer to Chapter II.F. b.

Private Placement

At present, the issuance of securities via a private placement is not yet available in Myanmar.

F.

Governing Law and Jurisdiction (Bond and Note Issuance)

The governing law and jurisdiction for a bond or note issuance is of significance since potential issuers may consider issuing under the laws or jurisdiction of a country or market other than the place of issuance. The choice of governing law or the contractual preferences of stakeholders may affect the accessibility to a specific investor universe that may otherwise not be accessible if a bond or note were issued under the laws of the place of issuance. At present, the governing law and the jurisdiction of agreements by contracting parties is required to be the law and jurisdiction of Myanmar if bonds or notes are to be issued in Myanmar. The upcoming convergence of foreign and domestic investment practices pursuant to the Myanmar Investment Law, 2016 is expected to further define what opportunities and flexibility for contracts and investments will exist in Myanmar.

G.

Language of Documentation and Disclosure Items

In Myanmar, laws (fundamental and key legislation) are required to be translated into English, if not always at the time of their promulgation. SECM publishes its notifications in both the Myanmar language and English, and YSX issues its regulations, manuals, and guidelines for listing, disclosure, trading, and post-trade activities primarily in English—sometimes only in English—in preparation for the broader inclusion of foreign market participants.


SECM already permits the use of an English translation of the prospectus, side by side with the original Myanmar language version, when an issuer applies for approval of issuance of securities. In the absence of a corporate bond market, it remains untested whether contracts and other bond issuance documentation and disclosure items that will be required to be submitted to SECM as part of the application process may be compiled and presented in English. In this context, YSX already prescribes that an issuer intending to list securities—presently limited to equities—should publish their key documentation in both the Myanmar language and English. The same is presently also untested for applications to, and correspondence with, policy bodies, regulatory authorities, and market institutions. At the same time, the Myanmar bond market does not yet admit nonresident issuers for whom this ability would be a significant feature.

H.

Registration of Debt Securities

In some jurisdictions, the registration of bonds issued in the domestic market with a designated registration place—such as an SRO, market association, or pricing agency—ensures the availability of reference pricing and general bond information for market participants at large. Some professional investors, such as mutual and pension funds, require investment assets to be officially registered or listed in order to satisfy governing prudential regulations. At this point in time, the registration of bonds in Myanmar is not practiced. However, since the issuance of government bonds is regularly conducted by CBM and pricing is published to market participants on a regular basis, reference pricing is in fact available (see also section I). In addition, reference prices of issued government securities may be available upon request from the Authorised Selling Agents.

I.

Listing of Securities

At present, the listing of securities on YSX is limited to equities, with the regulations and manuals of the exchange only referencing equity securities. The Guidelines on Initial Listing, which were issued by YSX in July 2016 to guide potential issuers, also only refer to stock listings and the need for an issuer to be a company under domestic legislation.

J.

Methods of Trading Securities (Secondary Market)

The trading of bonds and notes in the Myanmar bond market presently occurs only in the interbank market, between CBM and its constituents, among participating financial institutions and securities companies, and as purchase and sale transactions at the counter of Authorised Selling Agents appointed by CBM. Details on interbank market trading and the specific OTC concept for government securities are contained in Chapter IV. The SEL and SER, as well as SECM notifications, contain prescriptions for debt securities issuance and related practices, and specify the requirements for an OTC market. This is expected to spur the trading of debt securities once corporate bond issuance commences.

37

38

Myanmar

Bond Market Guide 2018 While the systems and procedures employed by YSX would in principle enable the trading of debt securities on its markets, the present YSX Trading Business Regulations, which were issued in October 2015, refer to equities as the only eligible instruments for trading.

K.

Securities Pricing

Myanmar does not currently have a securities pricing agency and, due to the small number of bond issues in the market, traded or reference prices are not expected to be collected and published in a centralized manner in the immediate future. 1.


At present, the pricing of bonds issued by the Government of Myanmar is done at the time of auction and during sale or purchase at the counter of the Authorised Selling Agent appointed by CBM, or in the form of a quote upon customer request. For transactions between CBM and financial institutions, pricing is done at the time of transaction between counterparties in the interbank market. CBM also publishes pricing results of government securities auctions as PDF files accessible via its website.31 2.


As a matter of reference, the price-finding mechanism for equities on YSX is based on an auction concept. Price information is also available to the public via the YSX website (Figure 3.1); the same web page also contains historical prices. Debt securities are not yet listed on YSX, but the currently available functionality is expected to also be available for future instruments on the exchange, including debt securities.

31

See http://www.cbm.gov.mm/content/1160


Figure 3.1: Yangon Stock Exchange Securities Price Information Web Page

Source: Yangon Stock Exchange. Market Summary. https://ysx-mm.com/en/mktdata/market-summary/

L.

Transfers of Interest in Bonds and Notes

The recording of a change in ownership of bonds or notes issued in the Myanmar market, or for securities at large, differs between transactions in government securities issued by CBM on behalf of the government and those securities listed and traded on YSX. 1.


For transactions in the interbank market—those between CBM and financial institutions registered as counterparties—transfers of interest or ownership in T-bonds are effected through CBM-NET.

39

40

Myanmar

Bond Market Guide 2018 CBM-NET comprises two systems: (i) a real-time gross settlement system for funds transfers, the CBM-NET Funds Transfer Service; and (ii) a system for the custody of government and central bank securities, the CBM-NET Central Securities Depository (CBM-NET CSD). The CBM-NET CSD maintains the register of government and CBM domestic securities. A transfer of a security in CBM-NET CSD is effected by debiting and crediting the accounts of the delivering participant and the receiving participant, respectively, in the quantity of the security relating to that trade. The settlement of transactions requiring the movement of funds is effected on a delivery-versus-payment basis by debiting and crediting the respective funds accounts (in CBM-NET Fund Transfer Service) and securities accounts (in CBM-NET CSD) of the counterparties to the trade. The making of such entries effects final and irrevocable delivery of the securities between the participants with respect to that trade. 2.


Pursuant to the Electronic Transactions Law promulgated in 2004, and SECM Notification 1/2015, dated 7 August 2015, securities listed on YSX may only be transferred on a book-entry basis. YSX has been designated a Book-Entry Transfer Institution (a transfer agent), which is part of the license of an exchange. As such, YSX carries out the transfer of interest or ownership in listed securities traded on its markets as a matter of course, through its depository operation. The practice is expected to be maintained for debt securities once they can be listed and traded on YSX. 3.

Prohibited Transfers

While Section 29 of the Business Regulations Relating to Book-Entry of Stock, etc. issued by YSX principally prescribes the transfer of YSX-listed and -traded securities for transactions other than exchange trades, free-of-payment transfers of securities are presently not permitted other than for the transfer of said securities into and out of a collateral account. At the same time, CBM-NET CSD does allow for free-of-payment transfers of securities, in order to support the booking of repurchase agreements of CBM with its constituents. 4.

Custodian Point of View

Participants in CBM-NET CSD may trade and hold government securities for their own account or for their customers (referred to as indirect participants). The transfer of interest or ownership of government securities occurs between participants in CBMNET (see also section 1) or in the accounts of indirect participants. Hence, the participants in CBM-NET CSD function as custodians on behalf of indirect participants. For securities listed and traded on YSX, the Business Regulations Relating to BookEntry of Stock, etc. define “Account Management Institutions,” who are able to maintain accounts for their own books and on behalf of customers with YSX as the Book-Entry Transfer Institution. An Account Management Institution fulfills the function of a custodian in other markets. Transfers of securities listed and traded on YSX are effected in the accounts maintained by these Account Management Institutions.


M.

Market Participants 1.

Issuers

Since 1990, CBM has been issuing government securities on behalf of the Government of Myanmar. Under the restructuring of the roles of government institutions to support a growing economy, CBM returned the power to issue securities to the Treasury Department of the then MOF, which was established in fiscal year 2014/15. However, CBM continues to issue government securities as an agent of the government. Corporate debt securities are not yet being issued in the Myanmar market, but their issuance is expected to commence in the near future. SECM is presently focused on defining a secondary market for government securities, followed by provisions to introduce the issuance and trading of corporate debt securities. 2.

Investors

Due to the current stage of development of the bond market, and the securities market at large, only a limited number of investor types are active in the bond market at this time. In addition to banks, a number of state committees and retail investors buy and hold T-bonds. a.

Banks

Banks are the primary investors in T-bonds, which can be used to obtain shortterm liquidity from CBM through a discount window. T-bonds are also recognized as liquid assets under the banks’ minimum reserve requirements. Banks buy T-bonds directly from CBM or at auction (see also sections C and E in this chapter), or from other interbank market participants. In January 2016, the FIL took effect, further defining the roles and abilities of banks to participate in the securities market. Please see Chapter II.I for details on these bank functions. MEB, a state-owned bank, is the largest commercial bank in the country, with 337 branches. In total, there are 4 state-owned banks, 6 semi-government banks, 24 private banks, and 13 foreign banks active in the Myanmar financial market.32 b.

Non-Bank Institutional Investors

Key among the non-bank institutional investors in T-bonds in Myanmar are state-owned institutions such as development committees who administer their own budgets and disbursements. The other main institutional investor type is represented by religious institutions that need to invest their funds and reserves. In addition, a number of companies also buy and hold T-bonds for their own purposes. c.

Insurance Companies

Insurance companies in Myanmar are expected to be able to invest in debt securities in the near future.

32 On the CBM website, banks, financial companies, and other financial institutions are listed under the Financial Institutions tab.

41

42

Myanmar

Bond Market Guide 2018 d.

Retail or General Investors

According to market observations, several thousand general or retail investors have purchased government securities (T-bonds) OTC at MEB branches or through MSEC under the previous direct issuance concept. However, the share of retail investment in T-bonds is considered small in comparison to the total issuance volume. e.

Pension Funds

Pension funds have established themselves as potential investors in the bond market, focused on government securities, in line with the nature and typical activities of their prudential mandate. f.

Mutual Funds or Unit Trusts, and Asset Managers

Mutual funds or unit trusts, or similar collective investment schemes, have not yet been established under Myanmar securities or prudential legislation. Asset managers require a securities business licence from SECM to operate. g.

Foreign Institutional Investors

At the present time, foreign institutional investors are not yet participating in the bond market, due to the absence of corporate bond issuances and lack of a secondary market for government securities. There are no outright provisions in the fundamental legislation and the SEL to limit or restrict the participation of nonresident investors. However, foreign investors need to obtain approval from DICA prior to investing in Myanmar. Please also see Chapter II.N for applicable regulations and limitations for nonresidents. 3.

Parties Involved in Debt Securities Issuance

Given the nascent stage of the Myanmar bond market, and the securities market in general, the concept of intermediaries is not yet well developed. At the time of the completion of this Bond Market Guide, SECM had licensed five securities firms to carry out securities agent business, which includes brokerage, underwriting, and other regulated activities. Banks and NBFIs do not require specific licensing for participation in the interbank market or for participation in the auction of T-bonds conducted by CBM. However, under the provisions of the SEL, a number of roles for intermediaries in the securities market can be identified as a result of the descriptions of activities and the corresponding licences on offer for market participants. Pursuant to Article 2 of the SEL, these activities include (i) trading of securities, (ii) acting as broker or agent in a securities business, (iii) taking responsibility for sub-distribution of securities, (iv) advising on investing in securities, and (v) offering clearing accounts for securities. As a practical guide, the present market participants involved in the issuance of debt securities, or those participants that are by their license or function already positioned to participate in the bond market, are being reviewed here.

Characteristics of the Myanmar Bond Market a.

Financial Institutions Registered as Bidders

Financial institutions intending to bid at T-bond auctions conducted by CBM need to be registered with CBM as counterparties for such participation and maintain an account in the CBM settlement system (CBM-NET). This limits participation to commercial banks. Under the FIL introduced in January 2016, commercial banks may participate in the buying and selling of securities for their own account or for their customers. There is no specific separate license required to participate in auctions of government securities. While there is no concept of primary dealers or market makers in the Myanmar bond market at present, policy makers are studying the introduction of this concept in future. b.

Securities Agent(s) (Underwriter[s])

Securities agent is the term used in legislation, rules, and notifications concerning the Myanmar securities market. A securities agent fulfills the function of an underwriter, or the role of an arranger if other deal parties are involved. Securities agents (underwriters) need to be licensed by SECM and may also carry out other activities in the securities market, as permitted by SECM. The appointment of a securities agent (underwriter) is mandatory in Myanmar for issuances via public offers, currently the only issuance option for securities. A securities agent (underwriter) is not responsible for the issuance documentation and submission of applications to SECM and YSX (in case of a listing) but should be expected to support the raising of documentation and related information. c.

Underwriter(s) in Context of Direct Issuance of Government Securities

Previously, the term underwriter had been used in a different context in the Myanmar securities market rather than in the traditional understanding of the term. MEB and MSEC act as issuing agents for T-bonds on behalf of the government and CBM (please also refer to section C in this chapter). These institutions are locally designated as underwriters for this practice, including on the CBM website. The naming is potentially misleading since these entities do not use their own funds to subscribe to the issued securities before placing them in the market. For a description of the role of MEB and MSEC as investors in the market, kindly refer to section 2 in this chapter. MEB issues T-bonds, or sells them OTC to its customers in eight branches, including the main branches in Mandalay, Nay Pyi Taw, and Yangon. MSEC sells T-bonds through its Yangon office only. d.

Securities Sub-Distribution Agent(s) (Selling Agent[s])

Securities sub-distribution agents fulfill the function of selling agents for securities to be issued to the public. In contrast to the underwriter or securities agent, these agents do not take a risk by subscribing to the securities at the

43

44

Myanmar

Bond Market Guide 2018 time of placement; instead, their purpose is to place securities within the investor universe allocated to them. Securities sub-distribution agents require a specific license for this activity from SECM. Securities firms who already have an underwriter or securities agent license may also act as a selling agent. e.

Shareholder Agent (Transfer Agent)

Comparable to the function of a registrar or transfer agent in other markets, the shareholder agent is tasked with keeping the ownership records of issued securities on behalf of the issuer. The name is derived from the focus on equities listed and traded on YSX at the time of compilation of this Bond Market Guide, but the function is likely to be adjusted or renamed once debt securities can be listed and traded on YSX or in the OTC market that has already been mentioned in regulations. At present, YSX is performing the role of shareholder agent for the stock listed and traded on its market, supported by its Business Regulations Related to Shareholders’ Agency Business. In this role, YSX also acts as paying agent for benefits arising from the equity securities in its records. f.

Custodians (Settlement Agents)

At the time of compilation of this Bond Market Guide, there were no market participants acting as third-party custodians (i.e., unrelated to securities firms or market infrastructure providers). Instead, the current market segments for government securities and exchange trading have already established their own settlement and safekeeping functions for the participants in each market. Under the FIL, commercial banks may act as custodians without obtaining a separate license from SECM. For government securities, CBM acts as the settlement agent for transactions between banks, or between the CBM and a bank, in CBM-NET. CBM also acts as the CSD and securities registrar for government securities and central bank securities. Participants in CBM-Net CSD may also perform settlement and safekeeping services for transactions in government securities and central bank securities for their underlying clients (called indirect participants). Eligible participants include regulated financial institutions, which may include a broker or dealer trading in securities or an insurance company or corporation. Foreign institutions are also eligible to participate in CBM-NET CSD.33 Commercial banks and the CBM are expected to be the main participants in CBM-NET CSD. In the case of OTC transactions via MEB or MSEC, either MEB or MSEC performs the settlement function, but securities are delivered in physical form to the buyer and ownership is endorsed on the back of the securities certificate. Transfer of ownership is reported to CBM on a regular basis for corresponding entries to the government securities register kept at CBM.

33 The CBM Guidelines on CBM-NET CSD define “foreign institution” as a “[p]erson other than an individual who (i) is incorporated, established or formed under the laws of a jurisdiction situated outside Myanmar or who is primarily regulated for prudential and liquidity purposes under the laws of a jurisdiction situated outside Myanmar; and (ii) is a Financial Institution, a broker or dealer trading in securities, an insurance company or a Central Bank.”

Characteristics of the Myanmar Bond Market In turn, trades on YSX are settled through the accounts of Account Management Institutions, who fulfill the function of custodians for their underlying clients. YSX acts as the Book-Entry Transfer Institution, or CSD, for transactions on its market. Account Management Institutions are participants in this function, not the exchange market itself. g.

Accounting Firms

Accounting firms are able to provide services to issuers or other market participants in the securities market, without the need to obtain a license or accreditation from the Myanmar Accountancy Council. Accounting firms need to be registered with DICA as the company registrar in Myanmar. In addition, accounting firms have to be accredited with the Union Office of the Auditor General to carry out audit work. h.

Law Firms

Law firms are able to provide services to issuers or other market participants in the securities market, without the need to obtain a license or accreditation from the Supreme Court, but will also need to register with DICA as a company in Myanmar.

N.

Definition of Professional Investors

The legislative and regulatory framework of the Myanmar securities market does not contain a definition of professional investor or the concept of different investor classes based on their incorporation, sophistication, or experience. Hence, at this point, there is no professional bond market or professional securities market at large in Myanmar. Going forward, securities market participants may be termed professional since they require licensing under the SEL. At the same time, the issuance of T-bonds by CBM to financial institutions, either by direct issuance or via auction is, by the nature of the activity, limited to professional participants.

O.

Credit Rating Requirements

At the time of compilation of this Bond Market Guide, a credit rating system and specific prescriptions for the issuance of debt securities were not yet in place. However, following the establishment of YSX and its increasing number of listed securities, and the advent of the corporate bond market, SECM is likely to introduce a credit rating system in the near future. At present, SECM is focused on improving the corporate governance standards among listed companies, in view of potentially listing candidate companies (see also Chapter IX), before incorporating such standards and requirements into regulations for credit ratings and credit rating agencies.

P.

Market Features for Investor Protection

Typical concepts for investor protection, such as a trustee or bondholder representative function, do not yet exist. Other investor protection measures are also not yet developed in Myanmar.

45

46

Myanmar


Measures for investor protection will be included in this section of the Myanmar Bond Market Guide once they are introduced in the market.

Q.

Bond Trustee or Bondholder Representative

At the time of compilation of this Bond Market Guide, the concept of a bond trustee, bondholder representative, or a corresponding function had not yet been established in the Myanmar bond market or the securities market at large.

R.

Bankruptcy and Insolvency Provisions

Provisions in Part V of the existing Companies Act, 1914 are concerned with the winding up of companies and contain comprehensive bankruptcy and insolvency prescriptions. However, these are expected to be reviewed and revised once the New Myanmar Company Law and the corresponding Rules have been promulgated. Provisions for bankruptcy and compulsory liquidation of banks and NBFIs are contained in the FIL, which also promotes equal access of resident and nonresident creditors to a universal pool of assets of a bank or NBFI in the process of liquidation that had engaged in cross-border activities.

S.

Event of Default and Cross-Default

In the absence of a corporate bond market in Myanmar, the need to define events of default and possible cross-default provisions has not yet arisen. However, the market expects such prescriptions in laws and regulations to be introduced in line with the development of the bond and securities market, likely starting with provisions in the New Myanmar Company Law.

Bond and Note Transactions and Trading Market Infrastructure A.

Trading of Bonds and Notes

At present, the trading of bonds and notes in Myanmar is conducted only in the interbank market. SECM is focused on establishing a secondary market for government securities, likely on the exchange market, followed by the issuance and trading of corporate bonds. Debt securities trading on YSX has not commenced, but would principally be possible once the relevant guidance has been issued by the regulatory authorities. The SEL also regulates the creation of an organized OTC market for securities; however, the OTC market has not yet been established. The buying and selling of government securities OTC at Authorised Selling Agents (MEB and MSEC) is a form of trading of securities unique to Myanmar. The trading of government securities and central bank securities in the interbank market is subject to the prescriptions of CBM. More information can be found in the individual sections of this chapter and other relevant sections in this Bond Market Guide.

B.

Trading Platforms

The trading of bonds and notes in the Myanmar bond market, which presently comprises only government securities, can be done in the interbank market, and at a later stage in an organized OTC market or on YSX. 1.

Interbank Market

Trading in the interbank market is limited to government securities and central bank securities and occurs between CBM and a bank, or between banks and securities companies. To participate, commercial banks and securities companies must be registered as counterparties and they need to maintain cash and securities accounts in CBM-NET and CBM-NET CSD, respectively (also see Chapter III.M). 2.

Over-the-Counter Market (Specific to Myanmar)

This original arrangement for the sale of government securities in the form of physical certificates was termed in the domestic market as OTC and, hence, unique to Myanmar in this form. It is not comparable to the traditional description of an OTC market. Holders of T-bonds that are still in the form of physical certificates interested in selling are required to use the services of MSEC or another securities firm to trade their bonds or deliver them into a depository account after the conversion of the respective T-bonds into scripless form. The institution will look for a buyer and inform both parties

48

Myanmar

Bond Market Guide 2018 if a trade is about to be concluded. As such, this form of bond transaction is similar to a married trade in an exchange market. 3.

Over-the-Counter Market

The SEL and SER provide for the creation of an organized and traditional OTC market in which unlisted securities, including debt securities, may be traded between counterparties registered with that OTC market. This OTC market is considered organized because it is required to be formed by a minimum number of market participants and is subject to licensing and market supervision by SECM. This OTC market is not yet active in Myanmar. 4.

Trading on the Yangon Stock Exchange

At present, the trading of securities on YSX is limited to equities. Trading is carried out using the call auction method as well as block trading. Details on trading and trading procedures are available on the YSX website.34 The YSX trading platform is not yet able to process debt securities, but existing trading practices and conventions are thought to be transferable once debt securities are listed and traded on YSX. Trading on YSX happens through a number of sessions from opening at 9:30 a.m. to closing at 1 p.m., Monday to Friday, excluding public holidays (Table 4.1). Table 4.1: Yangon Stock Exchange—Trading Hours

Time

Activity

Remarks

9:30 a.m.–11 a.m.

Order Entry Period

YSX records buy-and-sell orders sent by securities companies during the period.

At 11 a.m.

First Call Auction

YSX conducts matching of buy-and-sell orders.

11 a.m.–1 p.m.

Order Entry Period

YSX records buy-and-sell orders sent by securities companies during the period.

At 1 p.m.

Second Call Auction

YSX conducts matching of buy-and-sell orders.

Source: Yangon Stock Exchange. Trading Procedure. https://ysx-mm.com/en/trading/trading_procedure/

C.

Mandatory Trade Reporting

Due to the absence of an OTC market, there is no mandatory separate reporting of debt securities trades concluded between counterparties. Trades in the interbank market are executed between banks and securities companies and/or with CBM, and need to be recorded in CBM-NET CSD in order to effect change of ownership. For this, counterparties acting as direct or indirect participants of CBMNET CSD need to relate their transaction to the system under the participation agreement. Trades executed on YSX are captured in the YSX trading system and are reported on its trading platform by default. Trades executed are also reported on the YSX website for the general reference of the public. 34

See https://ysx-mm.com/en/trading/trading_procedure/

Bond and Note Transactions and Trading Market Infrastructure

D.

Market Monitoring and Surveillance in the Secondary Market

Due to the limited trading possibilities and the absence of a traditional OTC market, there is no market-wide surveillance for bond and note trading in Myanmar. For the time being, activities in the interbank market may be monitored by CBM through its supervision of the CBM-NET and CBM-NET CSD systems. YSX carries out market monitoring and surveillance of trading on its market, which is presently limited to trades in equities.

E.

Bond Information Services

Bond and notes issued in Myanmar are presently limited to government securities (Tbonds and T-bills) as well as central bank securities. As such, information on bonds and notes issued in Myanmar is typically available on the CBM website since CBM is also acting as the issuing agent of the government. The most comprehensive information on government securities can be found on the CBM website. Under the Government Securities tab, CBM provides the offering memorandums for both T-bonds and T-bills, the securities auction procedures, auction calendar and announcements, a securities price calculation tool, as well as auction results downloadable as a PDF file (Figure 4.1).

Figure 4.1: Central Bank of Myanmar—Government Securities Web Page

Source: Central Bank of Myanmar. http://www.cbm.gov.mm

49

50

Myanmar

Bond Market Guide 2018 While information on T-bonds is also available from the underwriters (domestic term for an Authorised Selling Agent of CBM), MEB and MSEC, general information as well as information on prices and yields of Myanmar government securities is also available from selected market intermediaries and information vendors.

F.

Yields, Yield Curves, and Bond Indices

In the absence of benchmark T-bonds, and given that a corporate bond market is not yet active, there are presently no market- or instrument-specific official yield curves available in Myanmar. At the same time, the MOPF is planning to establish benchmark bonds using the introduction of competitive auctions in September 2016 for T-bonds to create larger issue sizes of individual T-bonds, even if that may lead to odd-dated tenors in the short-term. 1.

Government Securities Yields

Figure 4.2: Prices and Yields of Government Treasury Bonds Issued via Auction

Source: Central Bank of Myanmar, http://www.cbm.gov.mm/sites/default/files/finance_mark/gb0001_auction_result_20.9.2016.xlsx.pdf

Bond and Note Transactions and Trading Market Infrastructure With the first-ever auction of T-bonds on 20 September 2016, CBM, as the issuing agent of the government, publishes auction results, including achieved yields and yields of T-bonds on a monthly basis, following each auction. The auction results can be downloaded as a PDF file from the CBM website (Figure 4.2). At present, auction results, prices, and yields of Myanmar government securities are not yet available on AsianBondsOnline. At the same time, market intermediaries and information vendors may track yields of existing government securities and produce yield curves for their own purposes, or for the provision of securities-related services to their clients. 2.

Bond Indices in Myanmar

Bond indices are expected to be established in line with the creation of benchmark Tbonds and the overall development of the Myanmar bond market.

G.

Repo Market 1.

Repo Market Overview

At present, CBM may conduct repurchase (repo) or buyback transactions with its interbank market constituents, using new and existing government securities. 2.

Market Structure

Repo transactions are carried out by CBM as part of its open market operation. Counterparties are the commercial banks, which participate in the interbank market, comprising the constituent participants of the CBM clearing system, CBM-NET. In addition, other NBFIs can participate in the interbank market if they maintain a cash account in CBM-NET and a securities account in CBM-NET CSD, or as indirect participants maintaining a relationship with a direct participant. CBM uses repo transactions to either offer liquidity to market participants or to withdraw liquidity from the market, as the case may be. Participants may use their holdings in government securities to obtain short-term liquidity. 3.

Acceptance of Standards

At present, participation in the interbank market or in repo transactions is based on the agreement of constituent institutions of the conditions for participation in CBM-NET and CBM-NET CSD. As such, this has established a local market standard. Owing to the nascent stage of development of the Myanmar bond market, and the absence of a private repo market outside central bank operations, there has been no pressing need to apply international standards, such as acceptance of the Global Master Repo Agreement. 4.

Specific Repo Practices

Some of the prescribed repo practices specific to the interbank market operated by CBM are described below. a.

Size and Tenor

A typical repo tenor has not yet emerged in the interbank market.

51

52

Myanmar


b.

Eligible Debt Securities as Collateral

At present, securities eligible for repo transactions include government securities as well as securities issued by CBM. In practice, usable securities are presently limited to T-bonds.

H.

Securities Borrowing and Lending

SECM is considering allowing securities borrowing and lending transactions in the Myanmar bond and securities markets in future and would issue specific notifications to enable and govern this business. At present, Trading Participants on YSX may borrow securities only for the purpose of avoiding settlement failure.

Description of the Securities Settlement System This chapter, as included in the original ASEAN+3 Bond Market Guides published in 2012, has been discontinued in favor of a more comprehensive and updated description in the Phase 2 Report of ABMF Sub-Forum 2 (SF2), Information on Transaction Flows and Settlement Infrastructures, dated 13 June 2014. The SF2 Phase 2 report contains information on the post-trade features of the Myanmar bond market, its market infrastructure and settlement systems, interest payment and redemption practices, as well as market and message standards (pp. 194–202). In addition, the SF2 Phase 2 report contains detailed infrastructure and transaction flow diagrams for Myanmar (pp. 506–516). The SF2 report is available at www.asianbondsonline.adb.org as well as through a number of mirror sites.35

35

See http://www.adb.org/publications/asean3-information-transaction-flows-and-settlement-infrastructures

Bond Market Costs and Taxation This chapter details the typical costs incurred by issuers and investors in the Myanmar bond market to the extent that such costs are already known during this development phase of the Myanmar bond market. For ease of reference, the descriptions of the types of costs are given in the context of the actions to be taken by issuers or investors (as explained in this document) and follow the lifecycle of a bond or note in the Myanmar bond market.

A.

Costs Associated with Bond and Note Issuance

This section lists the fees and costs expected to be incurred by the issuer in the process of issuing debt securities in Myanmar. 1.

Underwriter Fee (Mandatory for Public Offers)

The appointment of an underwriter—referred to as a securities agent in Myanmar laws and regulations—is mandatory in the case of a public offer of securities. The issuer is responsible for all documentation and their submission to SECM. If appointed, the underwriter (securities agent) will charge a fee for its services in support of issuance documentation and the selling efforts to potential investors. Due to limited issuances in the securities market, and given that there have been no corporate bond issuances to date, a market practice for such a fee or specific price expectation has not been established. 2.

Selling Agent Fee (Optional)

The issuer may appoint separate selling agents—referred to as securities subdistribution agents in domestic market terminology—at their discretion. This appointment is not mandatory in the Myanmar bond or securities market, including in the case of a public offer of securities. Selling agents (securities sub-distribution agents) would charge a fee, commensurate with the expectations of success of their effort in placing securities in the market. This fee should be expected to evolve along with market practices as this service provision becomes more established and securities issuances increase. 3.

Agent Fees (Mandatory)

In the absence of a trustee or bondholder representative concept in Myanmar, and with potential service provisions for corporate bond and note issuances yet to evolve, the one agent service provision required would be the transfer agency role—referred to in domestic market terminology as “shareholders’ agency,” which is presently performed by YSX for securities listed on its market only.

Bond Market Costs and Taxation Since YSX operates securities transfers on a book-entry basis only, transfer agent fees are further detailed under ongoing costs and depository charges in sections B and F of this chapter, respectively.

B.

Ongoing Costs for Issuers of Corporate Bonds and Notes

Issuance of corporate bonds and notes has not yet commenced in the Myanmar bond market. In line with the development of the corporate bond market, service provisions to their issuers and the corresponding service charges are expected to evolve accordingly. Once these charges are published, they will be included in this section of the Bond Market Guide. As a general reference, YSX stipulates fees charged to issuers of securities listed and traded on its markets, for which it performs the mandatory shareholders’ agency function, in the Table of Fees for Book-Entry Transfers of Stock, etc., which is available for download from its website under the Business Regulations tab.36

C.

Costs for Deposit and Withdrawal of Bonds and Notes

At present, two CSDs exist in the Myanmar securities market, CBM-NET CSD for government and central bank securities, and YSX for securities listed and traded on its markets. YSX-traded securities are held in scripless form only, while government securities are now largely held in scripless form, but have also been issued to the public as physical certificates, many of which remain in circulation until maturity. 1.

Deposit Fee

CBM does not levy a deposit fee for securities deposited into CBM-NET CSD. Since YSX commenced the listing, trading, clearing, and settlement of securities only in scripless form, a deposit of securities certificates at any point in time is not applicable. 2.

Withdrawal Fee

CBM does not levy a withdrawal fee for securities withdrawn from CBM-NET CSD. Since YSX has commenced the listing, trading, clearing, and settlement of securities only in scripless form, a withdrawal of securities in the form or physical certificates is no longer possible.

D.

Costs for Account Maintenance at the Central Securities Depositories in Myanmar 1. Account Maintenance Fee at CBM-NET CSD

There is no fee for account maintenance with CBM-NET CSD. 2. Account Maintenance Fee at the Yangon Stock Exchange YSX bills each Account Management Institution a monthly book-entry transfer account management fee of MMK50,000 plus a token charge of MMK10 for each sub-account 36

See https://ysx-mm.com/wp-content/uploads/2016/04/ysxr23_en_032016_01.pdf

55

56

Myanmar

Bond Market Guide 2018 held by an Account Management Institution. These fees are payable at the end of each month.

E.

Costs Associated with Securities Trading

Trading participants are charged a number of fees by YSX, including for the examination of the qualification, admission, and basic service fees. In addition, YSX levies trading fees and cancellation fees as a percentage of the total trading volume of a Trading Participant.37 It should be expected that Trading Participants will strive to recover some or all of these fees in the form of brokerage fees or other costs charged to their investor clients. 1. Brokerage Fee (applicable to trades on the Yangon Stock Exchange) In its Notification (3/2015) on Business Time of Securities Companies and the Fee of Securities Brokerage Business, issued in October 2015, SECM issued general guidance for the setting of brokerage fees to the market participants. According to the notification, the following fees apply across trades in all securities (Table 6.1). Table 6.1: Securities Brokerage Fee in Myanmar

Trading Amount

Brokerage Fee

When the trading amount is less than MMK500,000

MMK5,000

When trading amount is between MMK500,001 and MMK1 million

1.0% of the trading amount

When trading amount is between MMK1 million and MMK10 million


When trading amount is between MMK10 million and MMK100 million


When trading amount is more than MMK100 million


Source: Securities and Exchange Commission of Myanmar.

F.

Costs for Settlement and Transfer of Bonds and Notes

Settlement and transfer fees for transactions settled in CBM-NET CSD and YSX, respectively, are described below. 1. Transaction Fee (Settlement and Transfer Fee) a. In the Case of Government Securities The fee for securities settlement is MMK2,000 per transaction and is charged to successful bidders at government securities auctions upon settlement of their bids.

37

For the full fee schedule applicable to Trading Participants, please see the Table of Fees for Trading Participant published on the YSX website at https://ysx-mm.com/wpcontent/uploads/2016/04/ysxr25_en_122015_01.pdf

Bond Market Costs and Taxation

b. In the Case of Securities Settled Through YSX In its Table of Fees for Book-Entry Transfers of Stock, etc., YSX lists the bookentry transfer service fee (settlement fee) as MMK10,000 for each transfer (settlement) between Account Management Institutions. Internal transfers between the accounts maintained by each Account Management Institution are charged at MMK2,000 per transfer. YSX also publishes the Table of Fees for Clearing and Settlement on its website under YSX Business Regulations.38 The table only contains fees applicable for instruments eligible for trading, which is presently limited to equities, but also includes securities borrowing transactions to avoid settlement failure.

G.

Taxation Framework and Requirements

The taxation framework and the collection of duties and taxes in Myanmar is set and administered by the Internal Revenue Department of the MOPF. The taxation treatment with relevance for the bond market is shown in Table 6.2 and reviewed in brief thereafter. Table 6.2: Duties and Taxes Related to Debt Securities in Myanmar

Duty or Tax Income Tax (Corporate)

Tax Rate (% or amount)

Debt Instrument

Investor or Institution

Government

Any investor

25

Corporate

Any investor

25

Government

Nonresident investor

15

Corporate

Nonresident investor

15

Government

Any investor

10

Corporate

Any investor

10

Government

Any investor

0.1

Corporate

Any investor

0.1

All debt securities

Any investor

Exempt

Withholding Tax

Capital Gains Tax

Stamp Duty

Commercial Tax

Source: Ministry of Planning and Finance, Internal Revenue Department.

1.

Income Tax (Corporate)

At present, the rate of corporate income tax payable by entities incorporated in Myanmar or doing business in Myanmar is 25%. However, tax incentives, including tax relief and concessionary tax rates, may be available for participants in the capital market under separate regulations (see also section 7 for details).

38

See https://ysx-mm.com/wp-content/uploads/2016/04/ysxr22_en_122015_01.pdf

57

58

Myanmar

Bond Market Guide 2018 2.

Withholding Tax

Withholding tax rates are dependent on the type of payment (e.g., interest, royalties, and payment for the work done under different kinds of organizations) and could range from 2.5% to 15%. Payments on income from interest are subject to the following rates of withholding tax: • • 3.

no tax for resident citizens and resident foreigners, and a 15% tax for nonresident or foreign investors. Capital Gains Tax

Myanmar imposes a capital gains tax on securities market transactions and the tax rate is 10% on gains. As the selling and buying of shares occurs continuously during a fiscal year, if the dealer is a company or partnership, it shall be assessed as business heading on income earned from the disposal of shares. If a natural person buys and sells, but not many times in a fiscal year, it shall be assessed as capital gains and taxed accordingly. However, under the Union Taxation Law, 2017, no income tax shall be levied even though the capital gains arise from an asset if the total value of one or more capital assets sold, exchanged, or transferred by any other means within a year does not exceed MMK10 million. 4.

Stamp Duty

Stamp duty is imposed on the transfer of shares in an incorporated company or other body corporate at the rate of 0.1% on the value of the shares. At the same time, a transfer of debentures, being marketable securities, attracts stamp duty at a rate of 0.1% on the value of the debentures, unless the debentures fall under the exemptions provided for in Section 8 of the Union Taxation Law, 2017. 5.

Commercial Tax

There is no value added tax in Myanmar. Instead, Myanmar applies a commercial tax as an indirect tax. However, commercial tax is not levied on activities in the securities market under the Union Taxation Law, 2017. 6.

Double Taxation Agreements

Table 6.3 indicates the countries with which Myanmar has entered into tax treaties.

Bond Market Costs and Taxation Table 6.3: Myanmar’s Tax Treaties with Other Countries

Country

Tax Treaty Date Signed

Tax Treaty Effective Date

United Kingdom

13 March 1950

13 March 1950

22 February 2002

1 April 2004

Viet Nam

12 May 2000

1 April 2004

India

2 April 2008

1 April 2009

9 March 1998

1 April 2009

23 February 1999

1 April 2010

20 November 2009

1 April 2011

7 February 2002

1 April 2012

Republic of Korea

Malaysia Singapore Lao People’s Democratic Republic Thailand

Source: Ministry of Planning and Finance, Internal Revenue Department.

7.

Tax Incentives

Nonresidents are principally subject to withholding tax. At the same time, the Income Tax Law provides for the possibility of exemptions from income tax under specific circumstances and for particular organizations or activities. One example is the provision that the MOPF, with the agreement of the Cabinet, may grant exemptions from income tax (and other forms of tax relief) to public companies listed on YSX for the development of the stock market. Beyond the securities market, examples of other exemptions for both residents and nonresidents may be found in the Myanmar Investment Law, 2016 and the Special Economic Zone Law.

59

Market Size and Statistics The original ASEAN+3 Bond Market Guide was published in April 2012 and included several pages of bond market statistics for the published economies, including historical data such as bond holdings, bondholder distribution, outstanding amounts, and trading volumes. Not surprisingly, this data became stale soon after publication. Since the ASEAN+3 Bond Market Guide is most likely to be updated only on a biennial basis, it is not the best channel for the dissemination of market statistics. Hence, a chapter comprising bond market statistics has been discontinued and replaced with a list of recommended sources for detailed, accurate, and current information sources on the Myanmar bond market. These sources are listed below in alphabetical order.

•

AsianBondsOnline (an ASEAN+3 initiative lead by ADB) https://asianbondsonline.adb.org/myanmar.php ‒ Market-at-a-Glance ‒ Market structure ‒ News (latest statistics)

•

Central Bank of Myanmar http://www.cbm.gov.mm/content/1309 ‒ Auction results, including prices and yields

•

Myanmar Central Statistical Office https://www.csostat.gov.mm/

•

Yangon Stock Exchange https://ysx-mm.com/en/mktdata/market-summary/ ‒ Market summary ‒ Bid–offer prices ‒ Market volume ‒ Index chart ‒ Historical prices

Presence of an Islamic Bond Market There is no Islamic bond market in Myanmar.

Myanmar Bond Market Challenges and Opportunities This chapter discusses some of the real and perceived challenges facing the Myanmar bond market and its participants. This chapter also aims to describe the possible mitigating factors and market developments that could address these challenges in an appropriate manner.

A.

Challenges in the Myanmar Bond Market

The challenges facing the Myanmar bond market are described below, but not necessarily in the order of priority for each policy body or regulatory authority. 1.

Timely Availability of Rules and Regulations in English

Myanmar’s laws are required to be translated into English, though this may not occur at the time the respective legislation is promulgated. In addition, some of the key rules and regulations may not be translated into English in a timely manner. This may have an impact on the level of interest and participation by nonresident investors and other market participants when considering the Myanmar bond market. At the same time, SECM and YSX publish their notifications and business regulations in English on their website in a timely manner. YSX may issue business regulations only in English, and both SECM and YSX are encouraging public companies to issue their prospectus and disclosure information in both the Myanmar language and English to prepare listed companies for a broader investing public in future. 2.

Need to Convert More Private Companies to Public Companies

As of August 2017, YSX featured four listed companies, which is significant considering that listings only commenced in March 2016 and that there are a finite number of public companies existing in Myanmar. At the same time, SECM would like to see the conversion of a larger number of private companies into listed companies, and their subsequent ability to issue and list their securities, to increase the number of securities on offer and achieve broader investor participation. For that purpose, SECM has defined among its objectives the need to educate private and public companies on corporate governance and disclosure practices, to ease them toward the ability to participate in the capital market. 3.

Capacity Limitations Across the Market

As of August 2017, YSX had four companies listed, with limited trading activities between the six licensed Trading Participants (securities firms) and their underlying clients. Government securities were effectively only issued in the interbank market and not open to actual secondary trading among institutional investors typically investing in debt securities. The auction process introduced in September 2016 may not have

Myanmar Bond Market Challenges and Opportunities immediately generated the additional institutional investors that are required in a market to establish continuous demand for debt securities issuances. In turn, the actual issuance of (debt) securities in relation to available market participants might still be insufficient to warrant significant investment in market infrastructure and the expertise necessary to carry the market forward. In response to these challenges, SECM is hoping to address some shortcomings in the securities market on a subject-by-subject basis (please see also Chapter X). 4.

Lack of Market Expertise

Owing to the present stage of bond or securities market development in Myanmar, the regulatory authorities, market infrastructure providers, and market participants are bound to have limited experience with the many aspects of a securities market and its typical development needs. In particular, a shortage of experienced staff in both SECM and YSX may hamper the ability to implement these necessary developments in the near-term. 5.

Lack of Public Awareness and Investor Protection

Since the Myanmar bond market, and the securities market at large, is in the early stages of development, market participants, including both policy bodies and regulatory authorities, cannot be expected to have accumulated much expertise. SECM is aware of the lack of both public awareness of investing in securities and also the need to establish measures of investor protection evident in a more established bond or securities market. Among these market features are a trustee or bondholder representative concept, the establishment of an investor protection fund by YSX, and a complaint or dispute resolution mechanism. In response, SECM will invest in educating the public on the features, benefits, and risks of investing in securities. It also hopes to establish adequate measures for investor protection in due time. 6.

Lack of Clarity of Tax Treatment and Tax Incentives

Being a typical side effect of a nascent yet fast-developing bond market, the tax treatment of new instruments and the activities of market participants in relation to new instruments in the Myanmar bond market, and the securities market at large, is in the early stages of development, and market participants, including both policy bodies and regulatory authorities, cannot be expected to have accumulated much expertise.

B.

Opportunities in the Myanmar Bond Market

To address some of the challenges mentioned in the previous section, a number of the planned and envisaged developments in the Myanmar bond and securities markets are reviewed in this section. These developments have been identified in the Capital Market Development Plan and through the actions and research of SECM. 1.

General Policy and Regulatory Environment

With the broad legislative and regulatory environment now in place, the Myanmar bond and securities market and its participants are well placed to tackle the aforementioned challenges. Based on existing laws and rules, SECM may now introduce market features and functions through its own notifications and react to the need to develop market practices in a timely manner. The opportunities mentioned below, as well as

63

64

Myanmar

Bond Market Guide 2018 some of the recent developments and future items discussed in Chapter X, are a reflection of SECM’s forward-looking activities. 2.

Listing of Securities by More Public Companies

Among the approximately 230 public companies in existence in Myanmar (as of August 2016), SECM has identified about 30–40 public companies that may be good candidates for the listing of their securities, starting with their company’s stock. These companies range from information technology to tourism and other services sectors. SECM had expected that two or three additional listings may occur in any given fiscal year. In fact, two additional companies did list on YSX in fiscal year 2016/17. In line with this expected development, one of the key priorities of SECM has been to further develop the practices for corporate governance and adequate initial and continuous disclosure for listed entities. 3.

Opportunities Created by the Myanmar Investment Law, 2016

The Myanmar Investment Law was issued on 18 October 2016 and its rules were published on 30 March 2017. The law came into effect on 1 April 2017. The law contains a clarification of what constitutes a foreign company. Previously, a company was considered a foreign company if at least one share of the company was held by a foreigner. Now, a certain percentage of shares of the company must be held by foreigners to classify as a foreign company. This reclassification is expected to create a pool of additional public companies that would be candidates for the listing or issuing of securities since these companies often have benefited from know-how transfers owing to a degree of foreign ownership, including in the areas of corporate governance, disclosure, and financing. 4.

Creation of a Corporate Bond Market

Among the priorities of SECM are the establishment of corporate bond and note issuance, and the trading of medium-term corporate bonds in a secondary market, likely on YSX. 5.

Potential for Cross-Border Listings and Linkages

In line with the Blueprint 2025 of the ASEAN Economic Community, links and linkages among the region’s financial markets are considered desirable. As such, the ability to link YSX with other exchanges in ASEAN markets, or the cross-listing of public companies already listed on YSX on exchanges in these ASEAN markets, are policy objectives for the long-term.

Recent Developments and Future Direction A.

Recent Major Developments

Recent major developments are considered those that occurred or have been announced in the Myanmar market since the first publication of the ASEAN+3 Bond Market Guide for selected economies in April 2012. 1.

Establishment of a Legal and Regulatory Framework for the Bond and Securities Market

The Government of Myanmar passed the SEL in July 2013, which serves as the legislative foundation of the securities market and contains prescriptions for the establishment of a securities and exchange commission, and the setting up of a securities exchange. The SEL also set out the licenses available for market participants and their principal qualifications. In 2015, the SEL was complemented by the SER, which interpret and further detail SEL provisions for the securities market activities and market participants. In turn, SECM continues to issue notifications on specific topics for the bond market and securities market at large. At the time of completion of this Bond Market Guide, SECM had issued six notifications as well as a number of instructions and announcements to the market. A list of notifications and instructions can be found in Appendix 2. SECM also allowed six securities companies to participate in government securities auctions, including the bond auction held by CBM in October 2016. Under the objectives of bond market development in Myanmar, SECM and CBM will issue the necessary regulations to allow securities companies to act as underwriters for government securities auctions. 2.

Establishment of the Securities and Exchange Commission of Myanmar

SECM was established in 2014, pursuant to the prescriptions of the SEL. The SECM Office has supported SECM’s work since February 2015. Since its inception, SECM has licensed the YSX and securities firms, passed the SER further detailing the SEL provisions, introduced a prospectus regime for public offers, oversaw the conversion of securities issuance from physical certificates to book-entry records, and published notifications on continuous disclosure and the conduct of securities firms, among other activities. SECM is now working on its next set of priorities: the establishment of an issuance framework for municipal bonds and the introduction of corporate bonds, including the ability to trades these securities in a secondary market (see section B for details).

66

Myanmar


3.

Establishment of the Yangon Stock Exchange

YSX was established as a joint venture between Myanma Economic Bank, the Daiwa Institute of Research, and Japan Exchange Group in December 2014. YSX received its license as a stock exchange from SECM in April 2015 and commenced listing and trading operation in March 2016. As of August 2017, YSX featured four equity listings on its market, with six securities firms admitted as Trading Participants. For a detailed description of the role and functions of YSX, please refer to Chapters II and IV in this Bond Market Guide. 4.

Establishment of Scripless Trading and Book-Entry Transfers

In the process of establishing the trading of securities, which is presently limited to equities trading on YSX, SECM also introduced the concept of securities in scripless form. As a result, stock trading on YSX could commence in March 2016 on a scripless basis with the use of a book-entry system. 5.

Transformation of Government Securities Market

From late 2015 to September 2016, the market for government securities underwent a near complete transformation. In late 2015, the issuance of T-bonds in the form of physical certificates was replaced with a book-entry system and outstanding certificates held by institutional investors deposited into the new system. In August 2016, CBM published the operational procedures for the auction process of government securities, with a first auction successfully conducted in September 2016. This was a significant departure from the previous practice of issuing T-bonds directly to investors upon request. In addition, the Treasury Department of the MOPF took over the role as issuer of government securities on behalf of the Government of Myanmar, while CBM retained its role as issuing agent. CBM also now conducts the auction process and has introduced a real-time gross settlement system (CBM-NET) and a central depository function (CBM-NET CSD) to manage the scripless securities issuance and transfer of auction allocations to and between the participating institutions, and to support a future secondary market in government securities. Along with the introduction of the auction process, the Treasury Department also formally issued a standing Treasury Bonds Offering Memorandum in August 2016 to highlight its objectives and the key features for government securities for the benefit of the investing public. 6.

Establishment of Benchmark Government Securities

In conjunction with the auction process for government securities introduced in September 2016, the Treasury Department is aiming to create benchmark securities among existing T-bond issuance by focusing on larger and more concentrated issues to the market. While this may create odd-tenored issues in the short-term, the objective is to be able to create issue sizes and features that support benchmark issues and a government securities standard yield curve, in line with expectations from seasoned institutional investors. The Treasury Bonds Offering Memorandum highlights the focus of the Treasury Department on standardized coupons and maturity dates to support these objectives.

Recent Developments and Future Direction

B.

Future Direction

The Myanmar bond market is at a nascent stage of development. As a result, much change is expected over the next 1–2 years, with SECM now already having established some basic securities market practices, and the need to follow-up with achieving objectives identified by the government in the Capital Market Development Plan. With these envisaged market developments, a number of key challenges for the bond market are expected to be addressed in a comprehensive manner (see also Chapter IX). 1.

Development of Issuance Framework for Municipal Bonds

The key priority for SECM with regard to bond market development is the establishment of practices toward the issuance of municipal bonds, which would aid the development of nation-building projects favored by the government. For that purpose, SECM will issue specific notifications in due course. 2.

Regulations for Issuance of Corporate Bonds

Second among its development objectives, SECM is working toward creating the regulatory environment for public companies to issue corporate bonds and notes in the Myanmar market, and to enable a secondary market in these instruments, likely on YSX. 3.

Listing of Debt Securities on the Yangon Stock Exchange

To support the bond market development objectives of SECM, YSX is expected to include the listing, trading, and settlement of debt securities on its market in the near future, in line with the pace of regulatory changes. To enable debt securities, YSX would have to amend its individual business regulations that presently only contain references to equities. At the same time, the YSX trading platform would have to be enabled for debt securities trading and Trading Participants would need to adjust their systems and practices to include the additional securities types. In addition, SECM has identified a number of additional public companies that may consider listing their securities on YSX in the near-term (see also Chapter IX).

67

Appendix 1 Practical References For easy access to further information about the market features described in the Myanmar Bond Market Guide—including information on the policy bodies, regulatory authorities, and securities market-related institutions—interested parties are encouraged to utilize the following links (most websites are available in English): AsianBondsOnline (Asian Development Bank) https://www.asianbondsonline.adb.org/myanmar.php Central Bank of Myanmar http://www.cbm.gov.mm/ Central Bank of Myanmar—Offering Memorandum for Treasury Bills http://www.cbm.gov.mm/sites/default/files/finance_mark/offering_memorandum_treasu ry_bill_amendment_8-5-2017_0.pdf Central Bank of Myanmar—Domestic Market Operations: Securities Auction Procedures http://www.cbm.gov.mm/sites/default/files/finance_mark/cbmsecuritiesauctions_proced uresaug20164.0_0.pdf Central Bank of Myanmar—Central Securities Depository Guidelines http://www.cbm.gov.mm/content/1684 Central Statistical Organization (Ministry of Planning and Finance) http://www.csostat.gov.mm/sdetails04.asp Directorate of Investment and Company Administration http://www.dica.gov.mm/ Ministry of Planning and Finance http://www.mof.gov.mm/en Myanma Economic Bank http://www.meb.gov.mm/en/ Myanmar Securities Exchange Centre Co., Ltd. http://www.msecmyanmar.com Securities and Exchange Commission of Myanmar http://secm.gov.mm/en/home/ Yangon Stock Exchange https://ysx-mm.com/

Appendix 2 List of Laws and Regulations A list of the applicable laws and regulations for the bond and securities markets in Myanmar is provided below for easy reference. The information given was correct at the time of the completion of this Bond Market Guide and will be updated periodically. Since the Myanmar market is developing rapidly, interested parties are encouraged to regularly check the links provided for the latest versions.

Table A2.1: Laws with Relevance for the Securities Market in Myanmar

Law

Link to English Document

Myanmar Companies Act, 1914

http://www.dica.gov.mm/en/myanmar-companies-act-mca http://www.dica.gov.mm/sites/dica.gov.mm/files/documentfiles/myanamr_companies_act_1914.pdf

The Central Bank of Myanmar Law, 2013

http://www.cbm.gov.mm/sites/default/files/cbm_law_unofficia l_translation_29-7-2013_1.pdf

http://secm.gov.mm/en/se-law/ / http://secm.gov.mm/wpcontent/uploads/2015/12/4.SECM-Law-Latest-versionEnglish.pdf http://www.cbm.gov.mm/sites/default/files/regulate_launder/fi nancial_institutions_law_updated_by_cbm_20160303websit Financial Institutions Law, 2016 e-1_0.pdf http://www.dica.gov.mm/sites/dica.gov.mm/files/documentfiles/myanmar_investment_law_official_translation_23-1Myanmar Investment Law, 2016 2017.pdf http://www.dica.gov.mm/sites/dica.gov.mm/files/documentfiles/mcl_english_version_mpf_comments_oct_2016_clean.p New Myanmar Company Law, 2017 df (draft version) Source: ADB consultants for SF1 from publicly available information.

Securities Exchange Law, 2013

The SER, issued in 2015, are not yet available in English. An overview of current notifications is available for download in English from the SECM website by clicking the Laws & Regulations tab and selecting Notification.39 Table A2.2 provides a list of individual notifications with direct links to the English text at the time of the compilation of this Bond Market Guide.

39

See http://secm.gov.mm/

70

Myanmar

Appendix 2

Table A2.2: Securities and Exchange Commission of Myanmar Notifications

Notification Notification (1/2015) Notification (2/2015)

Subject and Link to English Document Dematerialization of Shares http://secm.gov.mm/wp-content/uploads/2015/12/1-15DematNoti.pdf

Public Offering http://secm.gov.mm/wp-content/uploads/2015/12/150914-IPO-Notification-2.pdf

Business Time and Brokerage Fees Notification (3/2015) Notification (1/2016) Notification (2/2016) Notification (1/2017)

http://secm.gov.mm/wp-content/uploads/2015/12/Notification-BrokerageEnglish3-2015.docx

Continuous Disclosure http://secm.gov.mm/wp-content/uploads/2015/12/Continuous-Disclosure-E.pdf

Securities Companies Regulations http://secm.gov.mm/wp-content/uploads/2016/03/SC-Regulations-E-2-16-.pdf

Public Offering for Capital Raising by Listed Companies https://secm.gov.mm/wp-content/uploads/2017/07/Noti-english.pdf

Source: ADB consultants for SF1 from publicly available information.

Similarly, current instructions issued by SECM may be viewed and downloaded in English by accessing the SECM website and selecting the Laws & Regulations tab and selecting Instruction.40 A list of instructions at the time of the compilation of the Bond Market Guide is shown in Table A2.3 for easy reference.

Table A2.3: Securities and Exchange Commission of Myanmar Instructions

Instruction Instruction (1/2016) Instruction (2/2016) Instruction (3/2016)

Subject and Link to English Document Securities Account Opening Instruction http://secm.gov.mm/wp-content/uploads/2016/03/1.2016Ins.E.pdf

Securities Company System Installation Instruction http://secm.gov.mm/wp-content/uploads/2016/03/2.2016Ins.E.pdf

Anti-Money Laundering Instruction for Securities Companies, Stock Exchange, and Over-the-Counter Market http://secm.gov.mm/wp-content/uploads/2016/03/AML-Inst-3-16-E-.pdf

Instruction (4/2016) Instruction (5/2016)

Preventing Insider Trading http://secm.gov.mm/wp-content/uploads/2016/03/4.16-InsiderTrading-E-1.pdf

Use of Prospectus Format for Public Offering (including forms) http://secm.gov.mm/en/instruction-52016/

Instruction (8/2016)

Submission of Annual Report of Listed Companies in the Yangon Stock Exchange

Instruction (9/2016)

Allow Securities Companies to Purchase the Government Treasury Bonds for 10% of Paid-up Capital

http://secm.gov.mm/wp-content/uploads/2016/09/Ins8-E.pdf

http://secm.gov.mm/wp-content/uploads/2016/11/Instr-9-E.1.pdf Note: Instructions 6/2016 and 7/2016 do not relate to the securities market. Source: ADB consultants for SF1 from publicly available information.

40

Footnote 39.

List of Laws and Regulations

The YSX Business Regulations may be downloaded from the YSX website and are available in English.41 The YSX Business Regulations shown in Table A2.4 were correct at the time of the compilation of this Bond Market Guide.

Table A2.4: Yangon Stock Exchange Business Regulations

Business Regulations

Last Issued

Link to English Document

Trading Business Regulations

30 Oct 2015

https://ysx-mm.com/wpcontent/uploads/2016/04/ysxr01_en_102015_01.pdf

Enforcement Regulations for Trading Business Regulations

21 Dec 2015


Clearing and Settlement Business Regulations

24 Mar 2016


24 Mar 2016


12 Mar 2016


4 Apr 2016


Enforcement Regulations for Securities Listing Business Regulations

16 Dec 2016


Table of Fees for Listing Company

18 Dec 2015


Listing Criteria

13 Aug 2015


Trading Participant Business Regulations

12 Mar 2016


Enforcement Regulations for Trading Participant Business Regulations

31 Mar 2016


Table of Fees for Trading Participant

18 Dec 2015


Enforcement Regulations for Clearing and Settlement Business Regulations Business Regulations Relating to Book-Entry Transfers of Stock, etc. Securities Listing Business Regulations

Source: ADB consultants for SF1 from publicly available information.

41

See https://ysx-mm.com/en/regulations/ysxregulations/

71

Appendix 3 Glossary of Technical Terms Account Management Institution

Term used in YSX Business Regulations for the function of a custodian or account holder in the YSX book-entry system

Authorised Selling Agent

Bank appointed by CBM to sell government securities at the bank counter

Book-Entry Transfer Institution

Official term used for transfer agents in the Myanmar market

licenseholder

Entity licensed by SECM for specific activities in the securities market

Offering Memorandum

Key disclosure document for government securities (T-bills and Tbonds)

over-thecounter

In Myanmar, a specific, separate organized market for the trading of unlisted securities

Prospectus

Key disclosure document for (debt) securities offered in Myanmar

public company

Term refers to a company that is not a private company; does not refer to listed companies as the term may suggest in other markets

securities agent

Term in Myanmar legislation and regulations for the role of an underwriter in other markets; an activity to be licensed by SECM

securities subdistribution agent

Term in Myanmar legislation and regulations for selling agents of securities; an activity to be licensed by SECM

T-bills

Short form for Treasury bills

T-bonds

Short form for Treasury bonds

Trading Participant

Refers to member of YSX (a securities firm licensed by SECM and admitted by YSX)

Underwriter

Term that refers to the function of a selling agent for government securities on behalf of CBM

Source: ADB consultants for SF1.

ASEAN+3 Bond Market Guide 2018 Myanmar ASEAN+3 Bond Market Guide is a comprehensive explanation of the region’s bond markets. It provides information such as the history, legal and regulatory framework, specific characteristics of the market, trading and transaction (including settlement systems), and other relevant information. The Bond Market Guide 2018 for Myanmar is an outcome of the support and contributions of ASEAN+3 Bond Market Forum members and experts, particularly from Myanmar.

About the Asian Development Bank ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to a large share of the world’s poor. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

4/23/2018

Projects and Tenders | Asian Development Bank



Projects

Documents

Tenders

Project data sheets for loans, grants, TAs

Search Results 1-20 of 143

  Myanmar

Sort 

Filter »

Status: Proposed Approval Date: 31 Mar 2020

Greater Mekong Subregion East-West Economic Corridor Highway Development Project 50381-006; Myanmar; Transport Status: Proposed Approval Date: 26 Nov 2019

Second Mandalay Urban Services Improvement Project 50109-002; Myanmar; Water and other urban infrastructure and services Status: Proposed Approval Date: 28 Sep 2018

Power Network Development Project 50020-002; Myanmar; Energy Status: Proposed Approval Date: 29 Jun 2018

Rural Roads and Access Project 50218-002; Myanmar; Transport

https://www.adb.org/projects/country/mya

1/7

4/23/2018


Status: Proposed Approval Date: 31 May 2018

Greater Mekong Subregion Highway Modernization Project 47087-003; Myanmar; Transport Status: Active Approval Date: 26 Oct 2017

Resilient Communities Development Project 51242-001; Myanmar; Agriculture, natural resources and rural development Status: Proposed Approval Date: 28 Sep 2017

Third Greater Mekong Subregion Corridor Towns Development Project 48175-002; Myanmar; Water and other urban infrastructure and services Status: Active Approval Date: 20 Jul 2017

Preparing the Second Mandalay Urban Services Improvement Project 50109-001; Myanmar; Water and other urban infrastructure and services Status: Active Approval Date: 31 May 2017

Support for Strengthening Business Climate 50173-001; Myanmar; Public sector management Status: Active Approval Date: 21 Apr 2017

Greater Mekong Subregion East-West Economic Corridor Highway Development 50381-001; Myanmar; Transport Status: Active Approval Date: 31 Mar 2017

Strengthening Climate and Disaster Resilience of Myanmar Communities 50403-001; Myanmar; Public sector management https://www.adb.org/projects/country/mya

2/7

4/23/2018


Status: Active Approval Date: 28 Nov 2016

Irrigated Agriculture Inclusive Development Project 47152-002; Myanmar; Agriculture, natural resources and rural development Status: Active Approval Date: 28 Nov 2016

Equipping Youth for Employment Project 48431-003; Myanmar; Education Status: Active Approval Date: 07 Nov 2016

Telecommunication Towers Infrastructure Project 49470-001; Myanmar; Information and communication technology Status: Active Approval Date: 29 Sep 2016

Rural Roads and Access Project 50218-001; Myanmar; Transport Status: Active Approval Date: 26 Sep 2016

Power Network Development Project 50020-001; Myanmar; Energy Status: Approved Approval Date: 20 Jul 2016

MYA: Yangon Urban Renewal and District Cooling Project 47913-002; Myanmar; Water and other urban infrastructure and services Status: Active Approval Date: 22 Apr 2016

Emergency Support for Chin State Livelihoods Restoration Project https://www.adb.org/projects/country/mya

3/7

4/23/2018


49334-001; Myanmar; Agriculture, natural resources and rural development Status: Active Approval Date: 29 Jan 2016

Capacity Development for Project Implementation 49297-001; Myanmar; Public sector management Status: Active Approval Date: 15 Dec 2015

Economic Empowerment of the Poor and Women in the East-West Economic Corridor 48322-001; Myanmar; Public sector management

1

2

3

4

5

Next 



Learn More About ADB Projects Project Glossary Project Cycle Project Design and Management Access to Information

Related Documents All sovereign projects from 2005 onwards (xls) Project Administration Instructions https://www.adb.org/projects/country/mya

4/7

MYANMAR TRANSPORT SECTOR POLICY NOTE

RAILWAYS

ASIAN DEVELOPMENT BANK


RAILWAYS


Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2016 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2016. Printed in the Philippines. ISBN 978-92-9257-463-5 (Print), 978-92-9257-464-2 (PDF) Publication Stock No. RPT168054-2 Cataloging-In-Publication Data Asian Development Bank. Myanmar transport sector policy note: Railways. Mandaluyong City, Philippines: Asian Development Bank, 2016. 1. Transport. 2. Rail transport. 3. Myanmar. I. Asian Development Bank. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Attribution—In acknowledging ADB as the source, please be sure to include all of the following information: Author. Year of publication. Title of the material. © Asian Development Bank [and/or Publisher]. URL. Available under a CC BY 3.0 IGO license. Translations—Any translations you create should carry the following disclaimer: Originally published by the Asian Development Bank in English under the title [title] © [Year of publication] Asian Development Bank. All rights reserved. The quality of this translation and its coherence with the original text is the sole responsibility of the [translator]. The English original of this work is the only official version. Adaptations—Any adaptations you create should carry the following disclaimer: This is an adaptation of an original Work © Asian Development Bank [Year]. The views expressed here are those of the authors and do not necessarily reflect the views and policies of ADB or its Board of Governors or the governments they represent. ADB does not endorse this work or guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Notes: In this publication, “$” refers to US dollars. Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda The fiscal year of the Government of Myanmar begins on 1 April and ends on 31 March. “FY” before a calendar year denotes the year in which the fiscal year starts, e.g., FY2014 begins on 1 April 2014 and ends on 31 March 2015.

Contents Tables, Figures, and Boxes

iv

Foreword

vi

Acknowledgments

viii

Abbreviations

ix

Executive Summary

x

1

Rail Markets and Competitiveness 1.1 Passenger Services 1.2 Freight Transport

1 1 6

2

Railway Assets and Staff 2.1 Track 2.2 Signals and Telecommunications 2.3 Locomotives and Rolling Stock 2.4 Myanma Railways Organization and Human Resources 2.5 Information Systems

9 9 11 12 14 16

3

Railway Performance 3.1 Operational 3.2 Safety 3.3 Productivity 3.4 Financial Performance 3.5 Myanma Railways Management Performance 3.6 Government Investments

17 17 21 22 24 28 28

4

Options for Improving Myanma Railways Performance 4.1 Future Scenarios 4.2 Key Scenario Findings

30 33 35

5

Key Requirements for Railway Revival 5.1 Changing Investment Strategies 5.2 Changing the Railway Sector’s Organization and Governance 5.3 Changing the Organization of Myanma Railways

37 37 39 42

6

Proposed Implementation Strategy 6.1 Phase 1 (2015–2016): Planning 6.2 Phase 2 (2017–2019): Start of the Restructuring 6.3 Phase 3 (2020–2025): Second Phase of Restructuring

46 46 47 48

Appendixes 1 Organization Chart of Myanma Railways (2015) 2 Example of a Restructured Myanma Railways

49 50

iii

Tables, Figures, and Boxes

iv

Tables 1 Train and Bus Fares (Yangon–Mandalay) 2 Overview of Myanma Railways Rolling Stock (as of 2014) 3 Coupler Systems in Use 4 Myanma Railways Daily Train Runs 5 Average Speed of Freight Trains 6 Number of Intercity Trains Operated by Myanma Railways 7 Average Speed of Passenger Trains in Main Corridors 8 On-Time Performance of Trains (as of 2013) 9 Selected Rail Operating Performance Benchmarks 10 Analysis of Freight Cost Coverage Ratio, FY2014 11 Analysis of Passenger Cost Coverage Ratio, FY2014 12 Revenues and Costs by Type of Service, FY2014 13 Summary Diagnostic 14 Potential Solutions and Constraints 15 Scenario Analysis 16 Preliminary Results of Cost and Financial Modeling—Operating Ratios 17 Investments Identified in the National Transport Development Plan 18 Investment Projects Presented to ADB by Myanma Railways A2.1 Issues to be Addressed in Separating Myanma Railways into Business Units

4 12 14 18 19 20 20 21 23 25 25 26 31 32 34 36 38 39 55

Figures A Proposed Restructuring Phases 1 Myanma Railways Passenger Transport Trends 2 Passengers by Train Service—Main Groups 3 Passenger Volumes—Main Intercity Passenger Lines (2009/10 and 2013/14) 4 Average Railway Passenger Revenues 5 Passenger Transport Production Forecasts—Without Improvements 6 Possible Myanma Railways Passenger Long-Distance Market Share 7 Possible Range of Future Myanma Railways Intercity Passenger Demand 8 Trends in Myanma Railways Freight Transport 9 Distribution of Myanma Railways Freight Services by Lines 10 Composition of Myanma Railways Freight by Commodity, FY2013 11 Average Railway Freight Revenues 12 Myanma Railways Freight Market Share Potential 13 Possible Range of Future Freight Traffic Available to Myanma Railways 14 Sleeper and Ballast Renewal 15 Yangon Station Train Control Equipment

xi 2 2 3 3 4 5 5 6 7 7 7 8 8 10 11

Tables, Figures, and Boxesv

16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 A2.1 A2.2 A2.3 A2.4 A2.5 A2.6

Condition of Relay Points Yangon Station Train Control Circuitry Freight Train Fuel Consumption Age Distribution of Wagons Age Distribution of Coaches Myanma Railways Employees by Department Bottleneck Sections Number of Rail Accidents Distribution of Myanma Railways Network by Traffic Density Myanma Railways Revenue and Expenditures per Unit of Traffic Myanma Railways Expenses by Category, FY2013 Myanma Railways Expenses by Department, FY2013 Government Investments in Myanma Railways Distribution of Myanma Railways Capital Investments, 2009–2013 Scenario Evaluation Aspects Outline of a Possible Structure of the Railway Sector Myanma Railways Core Services Myanma Railways Noncore Services Model of a Restructured Myanma Railways Passenger Business Unit Freight Business Unit Infrastructure Management Unit

Boxes 1 Canada’s Experience in Rationalizing its Railway System 2 Perspectives on the Separation of Railway Operations from Infrastructure Management

11 11 13 13 13 15 19 22 24 25 27 27 29 29 33 41 50 50 51 52 53 54

43 45

Foreword

M

yanmar is at a historic milestone in its transition into a market economy and democracy. After decades of isolation and stagnation, the country has, since 2011, been undergoing a fundamental political, economic, and social transformation at unprecedented speed and scope. Achieving the country’s high growth potential will require continued reforms and structural transformation, especially in advancing major investments in infrastructure, developing relevant capacities and skills, and enhancing the business environment. This will enable Myanmar to reach the ranks of upper middle income economies by 2030. Due to massive underinvestment and neglect in recent history, Myanmar’s infrastructure lags behind its Association of Southeast Asian Nations neighbors, and hinders access to markets and social services. High transport costs and associated limited access to markets and services are among the main causes of poverty and regional inequality. Twenty million people still live in villages without access to all-season roads. The questions then are: how can basic transport services be provided to all? What does it take to improve the quality of the transport infrastructure and services for the private sector? How can Myanmar reduce the economic and social costs of transport? The Government of the Republic of the Union of Myanmar is committed to addressing these questions, and the underlying issues. Toward this end, the Government has commissioned from the Asian Development Bank (ADB) the preparation of a Transport Sector Policy Note. The Transport Sector Policy Note takes stock of the transport sector challenges, provides a strategic framework for reforms that could assist Myanmar’s policymaking, and identifies the areas where international financial and technical assistance could make the highest contribution to the development of Myanmar’s transport sector.

The Transport Sector Policy Note is composed of nine reports, including this one, and a summary for decisionmakers. The first two—How to Reform Transport Institutions, and How to Reduce Transport Costs—provide an overview and framework for policy reform, institutional restructuring, and investments. These are accompanied by separate reviews of key subsectors of transport: Railways, River Transport, Rural Roads and Access, Trunk Roads, and Urban Transport. These reports summarize and interpret trends on each transport sector to propose new initiatives to develop them. The thematic report Road Safety builds a first assessment of road safety in Myanmar. The thematic report How to Improve Road User Charges is a stand-alone study of cost-recovery in the road sector. The research was organized by ADB and the then Ministry of Transport, with the active participation of the Ministry of Construction and the then Ministry of Railway Transportation. A working group comprising senior staff from these government ministries guided preparation. The work stretched over the period of 24 months, and was timed such that the final results could be presented to the new government that assumed office in April 2016, as a contribution to its policy making in the transport sector.

vi

Forewordvii

As the Transport Sector Policy Note demonstrates, Myanmar can, and should, develop a modern transport system that provides low-cost and safe services, is accessible to all including in rural areas and lagging regions, and connects Myanmar with its neighbors by 2030. The Government has the determination to doing so, and can tap the support from development partners, the private sector and other stakeholders. It can take inspiration from good practices in the region and globally. The Transport Sector Policy Note provides a rich set of sector data, is meant to be thought-provoking, presents strategic directions, and makes concrete reform recommendations. It stresses the need to strengthen the role of planning and policy-making to make the best use of scarce resources in the transport sector. It highlights the need to reexamine the roles of the state—and particularly state enterprises—and the private sector in terms of regulation, management, and delivery of services in the sector. It identifies private sector investment, based on principles of cost-recovery and competitive bidding, as a driver for accelerated change. Finally, it aims at a safe, accessible, and environmentally friendly transport system, in which all modes of transport play the role for which they are the most suited. We are confident that the Transport Sector Policy Note will provide value and a meaningful contribution to Myanmar’s policymakers and other key stakeholders in the transport sector.

James Nugent Director General Southeast Asia Department Asian Development Bank

H.E. H.E. Thant Sin Maung M Union Minister Ministry of Transport and Communications

Acknowledgments

T

he Transport Sector Policy Note was prepared at the initiative of Hideaki Iwasaki, director of the Transport and Communications Division of the Southeast Asia Department of the Asian Development Bank (ADB). It was prepared by ADB staff and consultants. Adrien Véron-Okamoto (ADB) coordinated the study, prepared the notes How to Reduce Transport Costs, How to Improve Road User Charges and the overall Summary for Decision-Makers, drafted the executive summaries, and contributed substantially to the notes How to Reform Transport Institutions, River Transport, Trunk Roads, and Urban Transport. Gregory Wood prepared the note How to Reform Transport Institutions. The Railways note was prepared by Paul Power. It also benefited from analytical research and suggestions by Richard Bullock. Eric Howard prepared the Road Safety note. Kek Chung Choo prepared the River Transport note. Paul Starkey and Serge Cartier van Dissel prepared the Rural Roads and Access note. Serge Cartier van Dissel also prepared the Trunk Roads note. Colin Brader (of Integrated Transport Planning) prepared the Urban Transport note. The notes benefited from advice and suggestions from ADB peer reviewers and colleagues including James Leather, Steve Lewis-Workman, Masahiro Nishimura, Markus Roesner, David Salter, Nana Soetantri, and Fergal Trace. Angelica Luz Fernando coordinated the publication of the reports. The editing and typesetting team, comprising Hammed Bolotaolo, Corazon Desuasido, Joanne Gerber, Joseph Manglicmot, Larson Moth, Principe Nicdao, Kate Tighe-Pigott, Maricris Tobias, and Alvin Tubio greatly enhanced the reports. Assistance from the Government of Myanmar, especially of the Ministry of Transport and Communications, the Ministry of Construction, and the Ministry of Agriculture, Livestock and Irrigation, is gratefully acknowledged. A first draft of these notes was presented and reviewed by government’s study counterparts in 2015. This final version benefited from the comments and suggestions received.

viii

Abbreviations

ADB DMU FBU FY GMS ICD JICA MIS MK MR PBU PPP PSO UIC YCR

– – – – – – – – – – – – – – –

Asian Development Bank diesel multiple unit Freight Business Unit fiscal year Greater Mekong Subregion inland container depot Japan International Cooperation Agency management information system Myanmar kyat Myanma Railways Passenger Business Unit public–private partnership public service obligation Union International Railways Yangon Circular Railway

Weights and Measures km – kilometer kph – kilometers per hour mph – miles per hour

Currency Equivalents (as of December 2014) $1.00 = MK1,000 MK1.0000 = $0.001

ix

Executive Summary

This note analyzes the current and future performance and competitiveness of Myanma Railways (MR), examines options for its modernization and improvement, and recommends strategic directions for the modernization and reform of MR in the medium term.

Myanma Railways Is at a Crossroads The Myanmar transport services market is expanding rapidly, but MR—the sole railway service provider—is not in good shape to meet the demands. Twenty years ago, MR commanded a 44% share of the passenger market and 14% share of the freight market. As of 2015, its market share is only 10% for passengers and 1.5% for commercial freight. MR could disappear by 2025, hence critical decisions on MR’s future should be made. The MR market situation has suddenly deteriorated. In 2015, MR is operating in a very different market environment to that of 2005 or even 2010. Liberalization of vehicle imports is rapidly changing the transport market and these trends are likely to continue. Between 2009 and 2014, MR lost one-third of both its passenger and freight customers. MR’s revenues cover only about half its operational costs, which threatens even its medium-term sustainability. The market pricing of fuel has been a major shock to MR finances with many services now failing to cover even fuel costs, and annual operating subsidies are required. MR’s shortage of funds will inevitably worsen the existing deferred maintenance backlog, with knock-off effects on train performance. Although plans are proceeding to upgrade the Mandalay-Yangon corridor, implementation will take several years, possibly a decade. This corridor is just one of many corridors that need improvement for the railways to compete with other transport modes. In the interim, MR is at risk of losing a large part of its existing market as service levels continue to stagnate or decline and from which it will be extremely difficult to recover. The immediate priority must be to implement policies that will enable MR to retain as much of its current market as is economically justified over the next 5–10 years, while ensuring its finances are robust enough to allow infrastructure maintenance, in particular, to be vigorously undertaken to permit a steady improvement in service levels and operating efficiency. The continuation of the current institutional and operational structures will not achieve this, nor will a policy exclusively centered on investing in new civil works.

x

Executive Summaryxi

How to Revive the Railways in Myanmar? An important first step is to provide MR management with more freedom and allow them to deploy operating resources to services (such as mainline freight) which are profitable. In addition, most lines and services other than the Yangon–Mandalay–Myitkina corridor are uneconomic as of 2015, and need explicit financial support. This should be allied with a reorienting of the investment budget to overcome the maintenance backlog and allow MR to operate services efficiently and reliably. Restructuring of MR is a medium-term necessity. Any revival strategy will likely involve the following: ƷɆ

ƷɆ

ƷɆ ƷɆ

ƷɆ

Better investments. Investment levels should be maintained but they should directed toward trunk line maintenance, rolling stock, signaling and information systems, and intermodal freight facilities— in effect ceasing further investments in tertiary lines and most secondary lines until the overall MR situation has improved. Rationalizing assets and services. Lines and services will need to be scrutinized for their viability. Nonviable lines or services should be financed by the central government under public service obligations (PSOs), transferred to local governments, or abandoned. Financial restructuring. This involves the government recapitalizing MR, taking over its debt— particularly pension liabilities—and potentially converting MR’s land into equity. New governance for the rail sector. MR should be fully separated from the government and given managerial autonomy. The government would need to create a new railway department, and eventually, a railway regulator. New management tools, such as a corporate plan with full government policy support, is also required. Reorganizing Myanma Railways along commercial principles. MR should be corporatized and function as a commercial enterprise. Freight should be established as a separate business unit and separating infrastructure and services should be considered.

To implement revival, a phased approach is recommended starting early in 2015.

Figure A: Proposed Restructuring Phases

Phase 1 Planning (2015–2016)

Phase 2 Start of restructuring (2017–2019)

Phase 3 Second phase of restructuring (2020–2025)

Source: Asian Development Bank.

Phase 1 (2015–2016): Planning. The government should create an interministerial restructuring committee and propose a time-bound restructuring plan for the railways. During this phase, MR could review the profitability of its lines, prepare a rationalization plan, develop a modernization investment program, form a freight business unit, and potentially launch a containerization pilot program. The government could also create a precursor of the future railway department during this phase.

xiiExecutive Summary

Phase 2 (2017–2019): Start of Restructuring. During this phase, MR would be corporatized and restructured, and MR would commence its modernization investment program. Phase 3 (2020-2025): Second Phase of Restructuring. This phase would see the full implementation of the modernization investment program. Public service obligation programs and network rationalization would commence. Private sector involvement would be sought. Potentially, the freight market would be liberalized and MR’s business units corporatized. A regulator could begin exercising its functions.

1 Rail Markets and Competitiveness Key Findings Myanma Railways’ core passenger transport business is at risk of disappearing. As Myanma Railways (MR) offers cheaper and lower quality services than buses, MR attracts only the low-income population. The low-income market’s share is bound to decrease as Myanmar grows. MR’s share is estimated to fall from 12% to 2%–4% in the coming 15 years. There is also considerable opportunity for growth. Myanmar’s passenger transport business is growing fast. If MR was able to improve its services, it could triple its market share and multiply passenger volume by seven times. Government has prioritized passenger operations over freight, so that resources to develop the latter have been limited. MR transported 2.5 million tons of freight in FY2013, one-third less than 2 years before. Since 60% of freight is moved on government account, “commercial” freight is less than 1 million tons per year, putting MR’s market share at 1.5%. Freight transport could equally disappear or become a large viable business. MR is at risk of losing its entire freight business to road and river transport. However, if it could seize the opportunity, its market share could rise to 7%–15% and its commercial volume could rise 12–25 times.

1.1 Passenger Services Declining trend in use. The number of people using Myanma Railways’ (MR) passenger services has been declining since the peak of 76 million passengers in FY2007. Overall passenger travel by rail has declined by 21% since FY2010. In FY2013, MR carried 53 million passengers—22 million travelled on intercity1 passenger trains and 31 million used the Yangon Circular Railway (YCR), which is a suburban and commuter rail line. The decline in ridership has largely been in intercity passengers which has seen a 36% decline since FY2010, the year road vehicle imports were liberalized (Figure 1). Concentration of passengers in a few markets. In FY2013, MR operated intercity trains on 34 routes. About 35% of intercity passengers travelled on the Yangon–Mandalay route. Six of the 34 routes operated by MR handled 74% of all intercity passengers (Figures 2 and 3). 1

In this report, ‘intercity’ trains refer to all services outside the Yangon metropolitan area. They consist of express trains, main trains (slower long-distance trains) and local trains on both the main lines and branches.

1

2Myanmar Transport Sector Policy Note: Railways

80,000

4,000,000

70,000

3,500,000

60,000

3,000,000

50,000

2,500,000

40,000

2,000,000

30,000

1,500,000

20,000

1,000,000

–36%

Thousand passenger-miles

Thousand passengers

Figure 1: Myanma Railways Passenger Transport Trends

500,000

10,000 –

Intercity

Yangon Circular Railway

FY

20

13

12 20

11 20

FY

10

FY

20

FY

FY

20

09

08

07

20 FY

20

06

FY

20

05 FY

20 FY

FY

20

20 FY

04

00

95 19

FY

FY

19

90

–

Passenger-miles

FY = fiscal year. Source: Myanma Railways.

Figure 2: Passengers by Train Service—Main Groups (million passengers) 40

million passengers

35 30 25 20 15 10 5 0 FY2009 Yangon–Circular FY = fiscal year. Source: Myanma Railways.

FY2010

FY2011

Yangon–Mandalay

FY2012 Amarapura–Myitkyina

FY2013 Other intercity

Rail Markets and Competitiveness3

Figure 3: Passenger Volumes—Main Intercity Passenger Lines (2009/10 and 2013/14) (million passengers) 14 11.9 million passengers

12 10 7.7

8

5.3

6

3.2

4

2.1

2.0

1.8

1.3

2

1.6 1.5

1.4

1.1

e yin

k

lam

Ch

aw

n-

-M

wi

FY2009

ya N

Pa

au

th

ng

ein

pa

-H

tta

en

Py

th

ud

at

en m Ke

m

ap ar Am

au

gin

di

a-

ne

Ky

-P

ky yit M aur

an

ya

a in

lay da an -M on ng Ya

y

0

FY2013


Cheap, low-quality service. Despite a very significant increase in passenger fares since FY2010 (Figure 4), intercity travel by rail is still cheaper than travel by bus or car (Table 1). So, why are fewer people traveling by train?

constant MK per passenger mile

Figure 4: Average Railway Passenger Revenues (constant MK per passenger mile) 20 15 10 +130% 5 0 FY1990

FY1995

FY2000

FY = fiscal year. Sources: Myanma Railways and ADB.

FY2004

FY2005

FY2006

FY2007

FY2008

FY2009

FY2010

FY2011

FY2012

FY2013


Table 1: Train and Bus Fares (Yangon–Mandalay) (MK) Train

Bus

Ordinary class

4,650

10,600

Upper class or deluxe

9,300

16,000

Sources: Myanma Railways and ADB estimates, as of 2014.

Better road conditions and increased ownership of private vehicles have certainly contributed to the decline in the use of rail. However, the main problem is the poor quality of MR’s passenger train services. Trips on MR’s intercity trains are generally short (about 75% are less than 100 miles), and MR is unable to compete with buses and private vehicles in this market. MR passenger trains are slow,2 crowded, and uncomfortable (no airconditioning) and experience frequent delays due to equipment failures and track restrictions. Trains on the Mandalay–Myitkyina route experience serious delays due to bottlenecks where track capacity is restricted and track and operating conditions are difficult. MR’s market share could be smaller if the declining trend continues. MR currently holds about 12% of the intercity market (10% by passenger-kilometer) and 1.1% of the urban transport market in Yangon.3 If the natural (declining) trend in the use of MR’s passenger services continues, MR’s share of a growing market for passenger travel could be 2%–4% or lower by 2030 (Figure 5).4

Figure 5: Passenger Transport Production Forecasts—Without Improvements (million passenger-kilometer per year) 140

12%

120

10% 8% 2.7

80 60 40

10%

2.6

100

8%

River

6%

Rail

5% 3.5

3.4

3.0

3%

20

4% 2%

Air

2%

Bus Car Rail Modal Share

0%

0 2013

2015

2020

2025

2030

Note: Railway volumes forecasts are in bold. Source: ADB estimates.

2 3 4

From Yangon to Mandalay, it takes on average 9 hours by bus and 14–25 hours by train depending on train type. JICA. 2014. Project for Comprehensive Transport Plan of the Greater Yangon (YUTRA). Yangon. A full discussion of MR’s competitiveness and potential market is in the Thematic Note: Economic Review of the Transport Sector.


Share of Total Passenger Market

Figure 6: Possible Myanma Railways Passenger Long-Distance Market Share (as share of total passenger-kilometer market, %) 35%

30

30% 25% 20% 15%

10

10% 2

5% 0% Current Market Share

2030-Natural Trend

2030-With Investment

Sources: Myanma Railways and ADB estimates.

Considerable opportunity for growth. According to projections prepared by the Japan International Cooperation Agency (JICA) for the National Transport Development Plan and by this report, the future market for intercity passenger travel by rail is considerable. With strategic investments, MR’s share of this market could be increased to 20% by 2025 and to as much as 30% by 2030 (Figure 7). Challenges. MR’s first challenge is to reverse the “natural” trend by improving the quality of passenger services. The next challenge is to capture 20%–30% of the future market but to do this, MR will need a significant increase in its current passenger handling capacity (Figure 7).

Figure 7: Possible Range of Future Myanma Railways Intercity Passenger Demand (million passengers per year)

million passengers

180 160 140 120 100 80 60 40 20 0

153

88

22

Current Volumes

32

Estimates 2020 (JICA)

Estimates 2025 (ADB)

JICA = Japan International Cooperation Agency. Note: Projections are on the assumption that investments are made for railway upgrades. Sources: Myanma Railways, ADB, and JICA.



1.2 Freight Transport MR’s share of the freight market is low and decreasing. MR currently holds about 5% of the freight transport market. This overstates MR’s real position in the freight transport market because commercial freight traffic accounts for less than 50% of MR’s overall traffic base. For commercial freight alone, MR’s market share is only 1.5%. Twenty to 25% of MR freight traffic is ballast for both new and existing lines. Freight statistics also include about the same volume of parcels traffic which is wholly handled on passenger trains. Commercial freight traffic has declined by 28% since FY2012 (Figure 8).

4,000

8,000,000

3,500

7,000,000

3,000

6,000,000

2,500

5,000,000

2,000

4,000,000

1,500

3,000,000 –28%

1,000

2,000,000

Thousand ton-miles

Thousand tons

Figure 8: Trends in Myanma Railways Freight Transport

1,000,000

500 –

Commercial

Departmental and Parcels

20

13

12 FY

20

11 FY

20

10

FY

20

FY

20

09

08 FY

20

07 FY

20

06

FY

05

20 FY

20 FY

20

04

00 20

FY

FY

95 19

FY

FY

19

90

–

Freight ton-miles


Concentration of freight traffic in two corridors. MR’s freight market is concentrated in the Yangon–Mandalay and Mandalay (Myohaung)–Myitkyina corridors, which accounted for about 87% of MR’s commercial freight traffic in FY2013. About 92% of the freight in these corridors was transported on conventional freight trains; the rest was transported in brake vans on passenger trains (i.e., on “mixed” trains). About 5%–10% of MR’s traffic is through mixed trains (Figures 9 and 10). The main factor limiting rail freight development has been the lack of traction power. Locomotives used for freight services have been increasingly diverted to run passenger services, so that their number has been reduced. Also, MR does not operate container trains. MR is now working to establish a container train service between Yangon and Mandalay. A tender was issued in 2014 to select an investment partner that will initially assess the feasibility of establishing dry ports near the two centers and the operation of a container train service.


Figure 9: Distribution of Myanma Railways Freight Services by Lines (%) Others 13%

Figure 10: Composition of Myanma Railways Freight by Commodity, FY2013 (%) Forest products 8%

Rice 4% Parcels 23%

Myohaung– Myitkyina 25%

Yangon– Mandalay 62%

Source: Based on an analysis of FY2014 waybills using data provided by Myanma Railways.

Oil and fuel 4% Stone 7%

Departmental 29%

Others 25%

Source: Myanma Railways.

MR’s freight tariffs have increased significantly since FY2011. When commercial traffic declined by 21%, MR’s freight tariffs increased by 183%. Despite the increases, MR’s tariffs are still lower than road freight tariffs; still, MR has been unable to secure more of the freight transport market due to lack of resources for locomotives (Figure 11).

Figure 11: Average Railway Freight Revenues (constant MK per ton mile) constant MK per ton mile

60 50 40 30

+183%

20 10 0 FY1990

FY1995

FY2000 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009

FY2010

FY2011

FY2012

FY2013

FY = fiscal year. Sources: Myanma Railways and ADB.

Some of the problems are the following: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ 5

low availability of locomotives and rolling stock, limited freedom to negotiate tariffs with customers, minimal marketing of services, one-way traffic and limited backhauls,5 lack of modern bulk handling equipment (bulk handling and transfer is done manually), and no container train services.

MR charges a round-trip tariff to most shippers where there is no backhaul.


MR’s freight services could become irrelevant to commercial shippers. If MR’s problems are not addressed and the “natural” trend in the decline of freight tonnage continues, MR’s share of the freight market will be negligible by 2030 or even earlier (Figure 12).

Share of Total Freight Market

Figure 12: Myanma Railways Freight Market Share Potential (%) 7–15

16 14 12 10 8 1.5–5

6 4

1.5

2 0 Current Market Share Range

Natural Trend-2025

Potential Market Share Range

Note: Myanma Railways’ current market share is 5% including departmental and parcels, and 1.5% including only commercial freight. Potential share is 7%–15% depending on the intensity of competition with other modes. Sources: Myanma Railways and ADB estimates.

As is the case with passenger transport, the freight transport market is projected to grow. Railways could capture a large share of this market. It is projected that 12–25 million tons could be carried on the railway by 2025.6 MR’s freight capacity is underutilized, and there is scope to capture a larger market through better asset management, service improvements, containerization, and investment in equipment (Figure 13).

Figure 13: Possible Range of Future Freight Traffic Available to Myanma Railways (million tons) 45 40 35 30 25 20

12–25

40

Estimates 2025 (ADB)


15 10

17

5 0

2 Current Volumes


JICA = Japan International Cooperation Agency. Sources: Myanma Railways, ADB, and JICA.

6

ADB. 2016. Myanmar: Transport Sector Policy Note: How to Reduce Transport Costs. Manila.

2 Railway Assets and Staff Key Findings Myanma Railways’ (MR) track, rolling stock, and signalling systems are outdated and in critical condition: ƷɆ ƷɆ

ƷɆ

About half of locomotives, rolling stock, and coaches need to be replaced. Locomotives with high fuel consumption should be replaced or retired. Most tracks were originally designed to very low axle bearing standards, and have not been renewed since. Ballast is absent in many sections. At least 30% of bridges need major repair or replacement. Signalling systems are over 60 years old.

These constraints severely limit MR’s efficiency and service quality: ƷɆ ƷɆ ƷɆ

limiting operational speed and causing frequent delays and accidents, limiting line capacity and freight quantity, and requiring very high fuel consumption and other operational expenses.

MR has a very dedicated staff but is limited in its ability to attract skilled workers and managers or to train them in-house. This is because MR offers low wages and has limited training resources. MR’s capacity to address these challenges is limited by its status as a state-owned enterprise and its complex organizational structure.

2.1 Track Myanma Railways (MR) has 6,106 route km in 2014 (3,795 route miles), of which 705 km (438 miles) are double-tracked between Yangon and Mandalay. About 50% of the routes were constructed during 1988–2010, and another 116 route miles were added since 2011. The total length of tracks (including yards and stations) is 7,937 km (4,933 miles). Tracks have an axle load capacity of 12.5 tons, which restricts wagon loading (and is not consistent with neighboring countries that are reconstructing their networks to allow axle loads of 15–20 tons). MR is developing plans to increase axle load capacity to 20 tons to be consistent with other countries

9


in the Greater Mekong Subregion (GMS). MR has been progressively upgrading its rail from 60 pounds to 75 pounds and replacing wooden sleepers with concrete sleepers produced in plants constructed under build–operate–transfer (BOT) arrangements with MR. As of 2014, about 50% of sleepers are concrete. MR spent about $1,650 per track kilometer on maintenance in FY2014. This is very low by international comparison, which reflects the low standards used by MR. But this should be viewed with caution as track maintenance requirements are a function of the extent of mechanization, traffic volume (gross tonnage), train speed, and geographic conditions. Poor track conditions are a problem for MR and are a major cause of accidents and train delays. The major track problems to be addressed are the following: ƷɆ ƷɆ

ƷɆ ƷɆ

Most track work is manual. Track maintenance is not mechanized, and there is a shortage of skilled labor to maintain track primarily due to MR’s low wages. Track ballast is a major problem. In many locations, track ballast is either absent or of insufficient depth, which severely affects ride comfort. MR has since 2011 moderately increased its renewal efforts (Figure 14). Facilities for producing ballast of appropriate size and hardness are however insufficient. Longer crossing loops are needed on the Mandalay–Myitkyina track sections to increase capacity. There are many old rail bridges that need rehabilitation or replacement. Up to 30% of the 11,818 bridges may need major repair, based on a sample of bridge inspections undertaken by JICA from Yangon to Taungoo.

Figure 14: Sleeper and Ballast Renewal

Wood sleepers replacement (No.)

Concrete sleepers replacement (No.)

FY2013

FY2012

FY2011

FY2010

FY2009

FY2008

FY2007

FY2006

FY2005

FY2004

FY2003

FY2002

FY2001

FY2000

FY1999

FY1998

FY1997

FY1996

FY1995

FY1994

FY1993

FY1992

FY1991

FY1990

FY1989

FY1988

FY1987

700,000 600,000 500,000 400,000 300,000 200,000 100,000 0

Ballast replenishment (m3)

FY = fiscal year, m3 = cubic meter, No. = number. Source: Myanma Railways Performance Indicators (FY1988 to FY2013).

MR has already started track upgrading on the Yangon–Mandalay corridor. The corridor is now double-tracked, and welded and concrete sleepers have been installed. Further upgrading is under consideration consistent with the national transport development master plan and other investment requirements.

Railway Assets and Staff11

Between 2013 and 2015, MR completed tenders to the private sector to provide track maintenance services (mechanized) on the Yangon–Mandalay–Myitkyina track sections. Tenders have also been completed for the welding of track between Mandalay and Myitkyina. Evaluation of proposals was underway at the time of writing. Discussions with the Government of the Republic of Korea on funding for these works were also ongoing.

2.2 Signals and Telecommunications MR’s signaling and train control systems are old and life-expired. In some locations, the equipment is over 60 years old. Some of MR’s train control systems still utilize electric tubes (Figures 15, 16, and 17).

Figure 15: Yangon Station Train Control Equipment

Some upgrading (conversion to solid state relays and automatic block signaling) has occurred on the Yangon Circular Railway (YCR) and on the Yangon–Mandalay route, utilizing the fiber-optic cable that has been installed along the line. However, the condition of relays, wires, and points is poor throughout the system; as a result, manual block control is often necessary. There are no computerized control systems. Telecommunications on the Yangon–Mandalay route has also improved with the installation of a fiber-optic cable. However, these improvements have not yet been extended to other parts of the network that still rely on very high frequency (VHF) radio for train-to-station communications.

Figure 16: Condition of Relay Points

Photo by Paul Power (2014).


Figure 17: Yangon Station Train Control Circuitry



MR has tendered in 2014 for fiber-optic cable upgrade on the Yangon–Mandalay section, for the extension of fiber-optic cabling throughout the system, and for communications towers. These facilities will be used as shared resources to generate revenue. These planned developments will provide the backbone for improved train control, signaling, and telecommunications.

2.3 Locomotives and Rolling Stock Much of MR’s rolling stock is old and needs replacement or upgrade. The problems are described in the following paragraphs. The locomotives and rolling stock are old: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

56% of diesel locomotives are over 30 years old (Table 2). 74% of hydraulic locomotives are over 30 years old. 48% of wagons are over 40 years old (Figure 19). 30% of coaches are over 30 years old (Figure 20). Old locomotive units and rail buses breakdown frequently: on average, there are 325 failures per year, or almost 1 failure per day. The overall availability of rolling stock is less than 70%. Because of the age of the units, parts are difficult to obtain as they may no longer be in stock or available. Old locomotives are not fuel-efficient and contribute to MR’s increasingly high fuel usage (Figure 18). Old wagons and coaches are basically worn out, and most are unsuitable for rehabilitation.

MR has assessed some options to address the problem of old locomotives, including ƷɆ ƷɆ ƷɆ

repowering 30 locomotives (with new engines and modern control systems), purchasing new locomotive units, and developing a plant to manufacture diesel multiple unit (DMU) in Myanmar.

Table 2: Overview of Myanma Railways Rolling Stock (as of 2014) Rolling Stock

a

On Book

Operating

Stoppeda

Number of Rolling Stock over 30 Years Old

Diesel electric locomotives

268

182

86

149 (55.6%)

Diesel hydraulic locomotives

137

68

69

101 (73.7%)

Total

405

250

155

250 (61.7%)

Rail buses

166

79

87

Passenger coaches

1,331

1,091

240

404 (30.4%)

Freight wagons

3,374

2,673

701

1,611 (47.7%)c

These are awaiting heavy repair or already scrapped. In 2015, MR was expecting to receive 27 second-hand diesel multiple units from Japan. c The freight wagons are over 40 years old. Source: Myanma Railways. b

166 (100%)b


liter/1,000 ton-km

Figure 18: Freight Train Fuel Consumption 16 15 14 13 12 11 10 9 8 7 6 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

FY = fiscal year, km = kilometer. Source: Myanma Railways.

Figure 19: Age Distribution of Wagons (%)

Over 40 years (48%)

Under 10 years (19%)

Figure 20: Age Distribution of Coaches (%)

Over 30 years (30%)

Under 10 years (29%)

11–20 years (13%) 21–30 years (14%)

21–30 years (17%)

11–20 years (24%)

31–40 years (6%)



MR has the capacity to manufacture new coaches, and its capacity is sufficient to meet current market requirements. Market development would require purchasing new coaches, rail buses, or DMU. MR is progressively introducing rail buses on the YCR and a range of services outside of Yangon. Many are air-conditioned and thus provide a significant improvement in level of service compared to the locomotivehauled stock which they are replacing.


Nonstandardization of rolling stock requires MR to stock a multiplicity of parts for maintenance and repair. It also affects the scheduling of periodic repair. ƷɆ ƷɆ ƷɆ ƷɆ

Locomotives are a mix of Chinese, French, and Indian units. MR operates four different types of diesel locomotives and five different types of hydraulic locomotives. There are four different coach bogie types and eight different wagon bogie types. MR uses two different coupler systems; the systems are incompatible, and as a result trains must be composed based on coupler systems (Table 3).

Table 3: Coupler Systems in Use AAR Rolling Stock Diesel electric locomotives Diesel hydraulic locomotives Total

High

Low

Subtotal

ABC

Grand Total

61

0

61

207

268

6

35

41

96

137

67

35

102

303

405

Passenger coaches

222

150

372

959

1,331

Freight wagons

700

232

932

2,442

3,374

AAR = Association of American Railways couplers, ABC = Automatic Buffing Contact coupler. Source: Myanma Railways.

Another problem is the old maintenance facilities and equipment: ƷɆ

ƷɆ

MR has two facilities for major and heavy locomotive repair and periodic overhaul. Insein near Yangon was built in 1875 and Ywataung near Mandalay was built from 1969 to 1975. Wagon and coach repairs (and coach manufacturing) are done at a facility near Myitnge that was built in 1911. (The construction workshop was built in 1973.) The equipment in these facilities is also old and inadequate. For example; ż MR has one wagon wheel lathe at Insein (circa 1988). A new one is needed as well as an under floor wheel lathe unit. ż Load testing equipment at Insein is 56 years old and needs to be replaced with computerized testing equipment. ż Traction motor and generator overhauling shops need to be modernized. ż Hand tools are scarce and small machinery is old and needs to be replaced.

2.4 Myanma Railways Organization and Human Resources MR’s organizational structure is shown in Appendix 1. MR is a state-owned enterprise, not a corporation. Therefore, it takes instructions from the government and is not held to any performance objectives like corporation (or corporatized state-owned company).


Railways that are state-owned enterprises often lose sight of the overall objective of a railway, which is to transport passengers and move freight for customers. Instead, the primary objectives often become meeting government directives and delivering railway inputs, such as track maintenance or equipment repair. MR’s organizational structure is organized by function rather than by line of business. It has possibly too many layers of management. Overall, managers (officers) comprise less than 1.6% of overall staff, but there are also deputy general managers and assistant general managers. As not all officers are trained managers, this structure is particularly bureaucratic and unresponsive in practice. MR has over 20,000 staff. This is less than the sanctioned level of 32,000; but given the current traffic levels, MR employs more people than most railways of a comparable size. It may be possible—with modernization of management systems, upgrading of rolling stock and equipment, and mechanization of track maintenance— to reduce the number of employees over time. However, given the large potential markets available to MR, it may not be necessary to reduce staff as long as productivity is improved (Figure 21).

Figure 21: Myanma Railways Employees by Department Medical 226 (1%) Finance and controller of stores 475 (2%)

Managing director office 214 (1%)

Civil 4,997 (25%)

Commercial 1,467 (7%)

Traffic 6,440 (32%)

Mechanical 6,357 (32%)


Low wages are a problem. The average salary of MR staff is about 70,000 kyats (MK) per month, plus an additional MK30,000 per month contribution to employee welfare—approximately $100 per month overall. These low levels of wages are not sufficient to attract skilled workers and managers (or even unskilled labor) within Myanmar’s growing economy. Training and capacity development needs attention. MR needs to modernize employee skills in all technical fields to operate and maintain new technology, rolling stock, and equipment.


MR has two technical training facilities: ƷɆ ƷɆ

Central Institute of Transport and Communication (Railways Technical Training Center) at Meikhtila for general training of staff, station masters, and locomotive drivers; and Technical Training Center for mechanical and electrical staff at Ywataung.

Both facilities need to be completely upgraded and equipped with modern tools and training aids to provide better training services. In addition to technical training needs, MR lacks the capacity to undertake financial and operational analysis needed to prioritize and evaluate investment options. Similarly, MR lacks an internal costing capacity that would enable it to evaluate the extent to which operating costs would change with investments. MR’s capacity is also limited in the following areas: marketing, computers and networking, and management information systems (MIS).

2.5 Information Systems MR’s data collection is entirely paper-based. Ticketing, freight way billing, and train recording are not computerized. There are no electronic systems to exchange train information from station to station. All operating and financial data are collected and compiled manually. There are no management information systems (MIS) and no centralized asset databases. Manual compilation of data is tedious, and the lack of automation restricts MR managers’ ability to access timely information and to share information easily.

3 Railway Performance Key Findings Myanma Railways runs an impressive number of services, but it is forced to limit speed and cannot ensure on-time performance. MR maximizes the use of its main tracks despite the poor quality of its assets. However, systematic track and rolling stock failures force MR to halve potential speed and constrain reliability to 60% on average. Train derailments and other accidents are very frequent. The accident rate is about 50 times that of a modern rail system. Track condition is a lead issue. MR’s asset productivity is very low. MR’s assets are generally underutilized; they must be rehabilitated before they can be used more productively. Staff productivity is low, and there may be scope for downsizing. Compounding the operational constraints, most of MR’s network has little traffic and, in many cases, little potential market. Network rationalization would improve productivity. MR revenues cover only half of MR’s costs. MR has been making operational deficits since 2006. It is estimated estimate that MR’s passenger revenues cover only 66% of operational costs excluding infrastructure (37% of full costs). MR loses money each time it runs a passenger train, with the exception of some express trains. To the contrary, freight revenues cover 120% of operational costs excluding infrastructure (65% of total costs). Despite the critical need for asset renewal, MR mainly invests in new lines with little market potential. The government’s average annual investments reached $100 million during FY2008. However, 88% of investments have been for new railway lines (FY2009 data).

This section looks at MR’s performance in the context of its market results and the condition of MR assets.

3.1 Operational 3.1.1 Train Performance MR operated 443 trains per day in FY2013, which is consistent with its operations since FY2009. The quantity of MR’s services is impressive, given that these trains are operated with outdated train control systems, signaling equipment, and rolling stock (Table 4).

17


Table 4: Myanma Railways Daily Train Runs Train Type

Number of Trains per Day

Intercity passenger

198

Express

42

Mail and others

66

Mixed

62

Rail bus

28

Yangon Circular (suburban) Freight Total

215 30 443


3.1.2 Freight Trains MR freight trains are short (often less than 20 wagons) and transport 500–600 net tons of freight on average. On the Yangon–Mandalay and Mandalay–Myitkyina services, freight trains are usually powered by two locomotive units.7 On most other routes, freight is carried in mixed passenger and freight trains, and trains are usually powered by one unit. Freight traffic management is complicated by several problems: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

a high system-wide empty return ratio (no backhaul on most of MR’s shipments), long train (and wagon or coach) turnaround due to low average train speed (average turnaround per wagon is 7.5 days), low equipment availability, different coupler systems, and manual loading and unloading.

Train speed is constrained overall by the poor quality of train control and signaling systems (which increase station dwell times) and by the age of rolling stock. The speed of express trains is generally higher because there is no loading and unloading at stations, as is the case with ordinary and local freight trains. Train speed on Mandalay–Myitkyina is severely restricted by physical track capacity. MR operates more than 30 trains (including passenger trains) per day on this section, which has a single track in poor condition (minimal ballast and poor platform) and no passing loops. Block signaling is also old (circa 1949) and unreliable. It is manually activated and paper line clearance is required for track possession in bottleneck sections where operations are even more severely restricted due to the narrow width of the right of way.

7

Yangon–Mandalay express freight trains are 1,200 gross tons.

Railway Performance19

3.1.3 Passenger Trains MR operates 215 trains daily on the 29-mile Yangon Circular Railway (YCR) that provides commuter service to Yangon’s suburban areas. Services are poor quality and unreliable, especially in the rainy season where tracks may be flooded. Trains are crowded and the average speed is only 10 miles per hour (mph) due to track congestion (Table 5). Trains are conventional, e.g., locomotives pulling coaches (with the exception of the rail buses acquired in 2014) (Figure 22).

Table 5: Average Speed of Freight Trains Train Yangon–Mandalay (Myohaung)

Average Speed (mph)

Type

Mileage

Hours

Express

383

20

19.15

30

12.77

31

10.97

Ordinary Myohaung (Mandalay)–Myitkyina

Express

Yangon–Myitkyina

Ordinary

340

Ordinary 723

46

7.39

76

9.50

Sanctioned Speed (mph) 42 25 N/A

mph = miles per hour, N/A = not applicable. Source: Myanma Railways.

Figure 22: Bottleneck Sections No. (2) Division, Ywataung

End of the Division (2) Area, Milestone (612/3)

To Myitkyina

Moetarkyi (611/10) Kyauk Kyi

Nansiaung (611/18)

Ywataung–Nansiaung Track

Naba (590)

Naba–Katha Track

Bottleneck Areas

Katha–Moetarkyi–Kyauk Kyi Track

Katha (605) Nam Kham Bon Chaung

Kawlin (535/18)

Ywataung–Monywa Track

Kanbalu (490/6) Tangone

Monywa–Ye U–Khin U Track

Tantabin (469/18) YeU (515/6)

Aungtha–Bodhi Tahtaung Track

Khin U (458/6)

Chaung U–Magyiboke Track

Shwebo (444/12) Monywa (456/18) Aungtha Chaung U (441/21)

Watlet (428/6)

Bodhi Tahtaung

Magyiboke (453/18) Ywataung (393)

To Pakokgu

End of the Division (2) Area, Milestone (455/23)

Begin of the Division (2) Area, Milestone (390/20) To Mandalay



There has been much discussion within MR about changes to the YCR. Operating commuter rail services requires a considerable portion of MR’s resources and dedication. At the time of writing, MR was introducing diesel multiple units (DMU) to replace conventional trains. MR was also considering a public–private partnership arrangement for YCR operation, which would include service improvements, investment in equipment, rehabilitation of stations, and redevelopment of the Yangon station and lands. MR operated 198 intercity passenger trains per day in 2013–204. Intercity trains are both conventional and rail buses. As noted earlier, intercity passenger train fares are cheaper than highway buses, but slower and much less comfortable (Table 6).

Table 6: Number of Intercity Trains Operated by Myanma Railways Route

Mail

Local

Rail Bus

Yangon–Mandalay

Express 6

4

8

8

26

Yangon–Naypyitaw

4

4

Mandalay–Myitkyina

8

4

12

2

26

Yangon–Bagan–Pakokku

4

2

2

8

Pathein–Hinthada–Kyangin

2

16

6

24

Bagan–Mandalay

2

2

10

2

4

16

6

34

36

16

92

42

62

66

28

198

Yangon–Mawlammyine–Dawe Others Total

Total

Note: Not all trains operate the full length of the route. Source: Myanma Railways.

Coaches are old, seats are worn out, and there is no air conditioning. Water and toilet facilities are poor. Services are often unreliable due to breakdowns. A train on the Yangon to Mandalay route typically comprises eight to nine ordinary coaches, two to five upper coaches, plus a brake van. Sleepers are added on overnight services. On average, there are 90 persons per coach in ordinary class on the Yangon–Mandalay and Mandalay–Myitkyina trains. The average speed of intercity trains is low, and travel by train generally takes much longer than by bus (Table 7). The main exception is the link between Mandalay and Myitkina, where roads are not well developed. The low speed is due to the track condition and to the practice of many nonexpress services stopping at many, if not all, stations.

Table 7: Average Speed of Passenger Trains in Main Corridors Train Yangon–Mandalay

Type

Mileage

Hours

Average Speed (kph)

Sanctioned Speed (kph)

Express

383

14.5

42

68

25.0

24

19.0

29

Mail

26.5

21

Local

30.0

18

Mail Mandalay–Myitkyina

kph = kilometers per hour. Source: Myanma Railways.

Express

340

40


Poor punctuality is another issue. The reasons for poor punctuality vary according to the train operation, but generally they are attributable to ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

locomotive failures, brake failures, track caution orders, wagon (wheel) failures, delays at crossings, delays at stations due to signaling failures, and on the congested Mandalay-Myitkyina section, a delayed train delays all other trains.

In general, about 60% of MR intercity trains arrive or depart on schedule (Table 8). MR has set a target of 80%. Many express trains meet it, but not the local trains and “mail” trains.

Table 8: On-Time Performance of Trains (as of 2013) Train

Target (%)

Achievement (%)

Difference

Train

Target (%)

Achievement (%)

Difference

1 Up

70

61

–9

2 Dn

70

80

10

3 Up

80

19

–61

4 Dn

80

80

0

5 Up

80

19

–61

6 Dn

80

80

0

11 Up

80

64

–16

12 Dn

80

77

–3

33 Up

80

23

–57

34 Dn

80

7

–73

37 Up

80

24

–56

38 Dn

80

3

–77

55 Up

80

61

–19

56 Dn

80

32

–48

57 Up

80

13

–67

58 Dn

80

77

–3

119 Up

80

93

13

120 Dn

80

90

10

41 Up

70

22

–48

42 Dn

70

26

–44

47 Up

70

12

–58

48 Dn

70

4

–66

131 Up

70

93

23

132 Dn

70

90

20

135 Up

70

48

–22

136 Dn

70

35

–35

117 Up

70

97

27

118 Dn

70

93

23

123 Up

70

81

11

124 Dn

70

81

11

M-41

70

93

23

R-46

70

87

17

23 Up

70

93

23

24 Dn

70

90

20

115 Up

70

100

30

116 Dn

70

100

30

Dn = Down. Source: Myanma Railways.

3.2 Safety MR has experienced a high number of derailments and other accidents over the years. MR’s accident rate is 0.852 accidents per million traffic units. This is about 50 times the level in modern railways. Most of these accidents are simple derailments (Figure 23), linked to poor track condition.


Figure 23: Number of Rail Accidents 800 700 600 500 400 300 200 100 0 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Derailment between sections

Train parting

Derailment within station yard

Accident on level crossing

Others


There is no central entity (office) within MR responsible for ensuring the safety of operations. MR operates according to a set of general rules that specify safety requirements and regulations, and MR trains staff on these rules periodically. Station masters manage safety at the station level, and the Mechanical Department inspects the trains prior to departure. Assistant permanent way inspectors, who routinely examine track for defects, manage safety on track sections. The train controller manages track possession, and often radio communication (or paper authorization or manual unlocking) is required to ensure the protection of work gangs. Guards operate road crossings. Most crossing barriers are manually operated, except for some sections on the YCR.

3.3 Productivity MR’s asset and staff productivity is low when compared to similar countries. Table 9 shows some operating performance indicators for MR in comparison with other Southeast or South Asian countries. MR’s performance indicators are lower than most other benchmarks, with the exception of the traffic units per locomotive. For instance, with a shorter network and about as many staff, Indonesia’s railways move 10 times more freight and 4 times as many passengers. Overall, MR physical assets (track and rolling stock) are underutilized, which means that there is extra capacity to handle additional passengers and freight. However, because of the condition of the assets, they must be rehabilitated or replaced if they are to be used more productively to handle higher traffic volumes.


Table 9: Selected Rail Operating Performance Benchmarks Myanmar

Bangladesh

Indonesia

Malaysia

Pakistan

Thailand

Viet Nam

Year of data

2014

2008

2008

2008

2008

2007

2008

Network operated (km)

5,284

2,835

4,813

1,665

7,791

4,429

2,347

250

285

495

92

555

271

319

79

0

568

116

0

244

0

Coaches

1,091

1,416

1,576

359

1,868

1,509

1,060

Wagons

2,673

9,409

4,864

3,596

23,289

6,692

4,048

Locomotives Railcars

Staff (thousands)

20

35

26

5

87

18

34

Passengers (million)

53

54

198

39

80

45

11

3,585

5,609

18,511

1,527

24,731

8,037

4,139

2

3

20

5

7

12

8

676

870

5,452

1,384

6,187

3,161

3,807

Passenger-km (million) Tons (million) Net tkm (million) TU/route-km (million) TU/staff (thousands) TU/locomotive (million) Pkm/car (million) Tkm/wagon (million) Av dist (passengers) (km) Av dist (freight) (km)

1

2

5

2

4

3

3

213

184

940

542

357

625

231

17

11

11

7

28

11

12

3

4

9

3

13

5

4

253

92

1,121

385

266

472

940

68

104

94

39

309

178

374

338

265

279

265

855

266

467

Av dist = average distance, km = kilometer, Pkm = passenger-kilometer, Tkm = ton-kilometer, TU = traffic unit. Sources: Asian Development Bank estimates, based on Myanma Railways data and various sources.

Most of MR’s network has little traffic. No line carries major traffic by international standards (Figure 24). About 68% of MR’s traffic is carried on only 25% of the route network—the trunk lines or main corridors—while about 59% of the network carries just 14% of MR’s traffic. This implies scope for rationalization of services to concentrate on serving key markets. The network can analyzed as comprising four subnetworks: ƷɆ

ƷɆ

ƷɆ ƷɆ

Trunk network (664 km). These are the YCR and Yangon–Mandalay lines, both of which are dual track. YCR has an average traffic density of about 10 million passengers annually, and Yangon– Mandalay an average traffic of about 2 million units (counting one ton of freight as equal to one passenger). Only these lines would qualify as main lines according to the Union International Railways (UIC) classification. Secondary network (1,531 km). This includes the lines to Pyay, Mawlamyine, Myitkina, Magway, and Chauk, and the Pathein–Hinthada line. Average traffic density is about one million traffic units annually, mostly passengers. Tertiary network (1,482 km). Traffic density is 200,000–400,000 passengers annually. Quaternary network (2,429 km). Traffic density is less than 200,000 passengers annually; for most of the lines constitutive of this network, traffic is even lower than 50,000 passengers annually. These lines are usually grouped with the tertiary network. These lines have been treated separately to highlight their very low contribution to MR’s transport task.


Figure 24: Distribution of Myanma Railways Network by Traffic Density

Traffic density (million passenger and ton per km per year)

11 10

Trunk network: –11% of length –50% of traffic

9 8 7

UIC5

6 5 Secondary network: –25% length –37% traffic

4 3

Tertiary network: –24% of length –9% of traffic

2 UIC7

Quaternary network: –40% of length –4% of traffic

1 UIC8

UIC9

0 0

1,000

2,000

3,000

4,000

5,000

Network length (km) km = kilometer, UIC = Union International Railways. Note: UIC1–9 is an international scale for railway traffic density, UIC1 includes lines with the highest traffic. Source: Asian Development Bank analysis of Myanma Railways data.

3.4 Financial Performance The increasing level of expenditure is not sustainable. MR had in FY2014 a working ratio (i.e., cash costs excluding depreciation compared to cash revenues) of 140%. Its operating ratio, if computing depreciation at replacement value, may be 180% or higher. Modern railways have much lower operating ratios (75%– 100%). In Northern America, this is achieved without direct subsidy. In Europe and Japan, this is achieved only after direct payments from the government for public service obligations and/or infrastructure capital or maintenance subsidies. An analysis of MR’s cost structure indicates that MR’s freight operation is covering its direct costs (fixed and variable). Freight revenues do not cover all capital costs. Freight revenues do not cover all capital costs, but are close to covering all above rail costs, so that a private operator may be able to invest (Table 10). In contrast, passenger services only cover 67% of their direct above rail costs, and only 37% of total costs (Table 11).


constant MK per unit of traffic

Figure 25: Myanma Railways Revenue and Expenditures per Unit of Traffic (constant 2013 MK per unit of traffic) 45 40 35 30 25 20 15 10 5 0

Expenditures per traffic unit

Revenues per traffic unit FY1990 FY1995 FY2000 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

FY = fiscal year. Sources: Asian Development Bank analysis of Myanma Railways data.

Table 10: Analysis of Freight Cost Coverage Ratio, FY2014 (MK per ton-km) Item

All costs

Fixed costs Variable costs

Above Rail Costsa

6.8

0

24.9

24.9

Capital costs

14.9

10.4

Total Costs

46.6

35.4

Average revenues

30.5

30.5

Revenues in % of direct costs (fixed + variable)

96

122

Revenues in % of total costs

65

86

Notes: Infrastructure costs distributed on basis of train-miles. Capital charges based on a mixture of new and secondhand equipment at a 4% real interest rate per annum. a Above rail costs do not include track costs. Source: Asian Development Bank estimates based on a costing model developed under ADB. 2014. Technical Assistance to Myanmar for Transport Sector Reform and Modernization. Manila.

Table 11: Analysis of Passenger Cost Coverage Ratio, FY2014 (MK per passenger-km) All costs Fixed costs

Above Rail Costsa

4.4

0

Variable costs

14.5

14.5

Capital costs

7.3

4.6

26.2

19.1

Total Costs Average revenues

9.7

9.7

Revenues in % of direct costs

51

67

Revenues in % of total costs

37

51

Notes: Infrastructure costs distributed on the basis of train-miles. Capital charges based on a mixture of new and secondhand equipment at a 4% real interest rate per annum. a Above rail costs do not include track costs. Source: Asian Development Bank estimates based on a costing model developed under ADB. 2014. Technical Assistance to Myanmar for Transport Sector Reform and Modernization. Manila.


Raising fares and tariffs cannot help reduce MR’s high working ratio. MR has little scope to increase tariffs and fares, given the large increases since 2010–2011 and MR’s lack of competitiveness with buses and trucks. The focus will need to be on ƷɆ ƷɆ ƷɆ

rationalizing services, significantly reducing operating expenses, and eliminating financial burdens.

About 40% of MR’s costs is attributable to fuel and materials used by the Mechanical Department. Replacing or repowering many of MR’s old (and not fuel-efficient) locomotives and standardization of rolling stock could significantly reduce operating costs. Similarly, MR incurs significant expenses to keep old wagons and coaches in running order. MR operates many light density lines and services. As noted in the section on productivity, 64% of MR’s route network (tertiary and quaternary lines) generates only 13% of MR’s traffic. Cost reductions could be achieved by reducing or stopping services on part of these lines. Beyond this, a detailed analysis shows that express trains cover about their direct operating costs, but that mail and local trains cover just half of them. MR could rationalize its supply considering the extent to which each service covers direct operating costs (Table 12).

Table 12: Revenues and Costs by Type of Service, FY2014 (MK billion) Passengers Express

Mail

Local

YCR

Total

Freight

23.4

12.0

9.7

7.1

52.1

14.8

66.9

Rolling stock CAPEX

7.2

3.5

3.3

2.4

16.4

6.2

22.6

Track OPEX

6.7

3.7

3.3

1.9

15.6

4.0

19.6

Track CAPEX

4.7

2.3

1.7

0.8

9.6

2.6

12.2

42.0

21.5

18.0

12.2

93.8

27.6

20.4

6.0

5.7

2.6

34.7

18.0

Costs OPEX excluding track

Total costs Revenues

Infrastructure

Total

121.3 9.1

61.8

CAPEX = capital expenditures, FY = fiscal year, OPEX = operating expenditures, YCR = Yangon Circular Railway. Source: Asian Development Bank estimates based on a costing model developed under ADB. 2014. Technical Assistance to Myanmar for Transport Sector Reform and Modernization. Manila.

Cost reductions could also be achieved by eliminating MR’s responsibility for historic pensions for the provision of medical, and welfare services to employees. These two items account for MK12 billion or 11% of MR’s operating expenses in FY2013. A part of welfare costs is reportedly bonuses paid to staff on a standard basis, which should be considered as salaries and unlikely to lead to cost reductions (Figures 26 and 27).


Figure 26: Myanma Railways Expenses by Category, FY2013 (%) Taxes 1% Administration 2%

Fuel 35%

Pensions 5% Operating 5% Material 6% Depreciation 7%

Labor 23%

Interest 16% Source: Myanma Railways.

Figure 27: Myanma Railways Expenses by Department, FY2013 (%) Depreciation, interest, and taxes 24.4%

Mechanical 44.5%

Miscellaneous 14.7% Commercial 1.4% Traffic 6.2% Note: Mechanical includes fuel costs. Miscellaneous appears to include historic pensions and welfare. Source: Myanma Railways.

Civil 8.8%


3.5 Myanma Railways Management Performance The government’s excessive involvement in MR management hampers strategic and business management. The Ministry of Transport and Communications (Ministry of Railway Transportation until April 2016) is practically responsible for any budgeting, planning, procurement, staff, and services decision. During the year, deviations from previously approved budgets and plans require new approvals. This process stifles initiative and slows down decisions, not least because the ministry allocates few staff to meet this important responsibility. Also, in practice, political motivations have prevailed over business needs (e.g., to invest into new lines rather than maintain the trunk network). MR management is complacent. MR managers are accustomed to responding to the government’s wishes and to being told what to do rather than managing the company and innovating. There has been a lack of management focus on building the railway business, which includes marketing, customer service, and introducing systems to aid in the management of assets and operations. As a result, there is an unwillingness to take initiative to address MR’s problems. Some leaders in MR have strategic leadership capacity, but they do not have the power to introduce change. A change in management style can only be achieved through a change in governance. In order to meet the challenges of the transport market and to restore MR’s assets, a change in focus is necessary and this will require separation of the Ministry of Transport and Communications from MR, changes in MR’s governance (i.e., corporatization) and possibly changes to MR’s internal structure. The first step would involve allowing MR management to radically overhaul policies and procedures in line with business needs. But this alone will not solve MR’s economic problems, and the government will need to provide significant financial support for many years.

3.6 Government Investments The Myanmar government has invested more than MK800 billion ($800 million) into MR between 2009 and 2014. This includes MK186 billion in operational subsidies and MK620 billion in capital investments. The figure below shows the trend and extent of Myanmar’s investment in its railway system (Figure 28). Almost 88% of capital investment in MR since FY2009 has been into track, a large share of which has been for the construction of new (mainly tertiary) lines. Although historically, capital investment in transport infrastructure has been only about 1% of GDP, roughly 30% of investment has been in railways, mostly in the construction of new railway lines. The size of MR’s railway trackage has increased by almost 100% since 1988. There is no evidence that a serious feasibility study of the new lines was undertaken (Figure 29). Investing in the construction of new trackage has led to the neglect and deterioration of other railway assets. Investment in other railway assets (track, rolling stock, equipment, signaling, and automation) has been negligible relative to the massive amounts invested in line construction.


Figure 28: Government Investments in Myanma Railways (MK billion) 160 140 120 100 80 60 40 20 0 FY1990 FY1995 FY2000 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014

Capital investments

Operational subsidies

FY = fiscal year. Source: Myanmar National Accounts.

As a result, MR’s existing assets are in a poor state, which is now one of the major factors affecting MR’s operational and financial performance. Further, MR has been tasked with operating these new lines (many of which are tertiary with low traffic density) without being given the financial capacity to operate them properly or to structure services consistent with demands.

Figure 29: Distribution of Myanma Railways Capital Investments, 2009–2013 (%)

Signals and telecom 2.6% Rolling stock 8.9%

Equipment 0.2%


Track, buildings, and structures 88.4%

4 Options for Improving

Myanma Railways Performance

Key Findings and Suggestions Myanma Railways (MR) is at a crossroads. Three scenarios can be conceived: ƷɆ

ƷɆ

ƷɆ

Business as usual. If things keep going as they are, MR’s market share would dwindle until the Yangon–Mandalay track is fully rehabilitated. Despite this investment, MR would require permanent subsidies in order to remain financially viable. Extensive growth. Alternatively, the government could choose to lower rail rates, increase volumes, and invest massively in track and rolling stock. Such strategy would require a lasting government commitment to subsidize up to $300 million a year most of the rail investments as well as operational expenditures. Revival. A strategy to revive the railways ensures MR’s market share in the long term and makes MR financially sustainable. It requires reorienting MR on a commercial basis, rationalizing its assets, changing its investment strategy, developing freight services, recapitalizing, debt restructuring, reorganizing the MR, and revising its relationship with the government. This strategy requires significant initial financial and political commitment from the government as well as donor assistance. In the long term, this support could be reduced, particularly if the government cuts back on uneconomic services.

Only the revival strategy can ensure the long-term sustainability of the railways in Myanmar.

MR is charged with being “all things to all people,” and this is a difficult task. MR operates freight trains, mixed trains, intercity passenger trains, and commuter trains. It employs over 20,000 people directly (and even more indirectly). It maintains and operates a large rail network, and it must operate services even where such operations are not economically justified. It is required to operate and maintain many new railway lines without the financial and operating capacity to do so. It operates trains with nonstandardized and aged rolling stock under the control of ancient signaling. It is commendable that MR’s staff has managed to hold the railway together for so long, with most capital investment going to the construction of new lines. But despite this effort, MR is now at a crossroads. If the declining trend in the use of MR’s services continues, MR risks becoming irrelevant in the freight transport market and losing more of its share of the passenger market. If service quality is not improved soon, fewer people will want to take the train regardless of cheap fares.

30

Options for Improving Myanma Railways Performance31

Despite this dismal diagnosis, there are considerable opportunities for MR to thrive within a rapidly growing market for transport services. These opportunities are accessible to MR provided that the government makes some changes in its railway policy. MR’s problems, potential solutions, and operating constraints are summarized in Tables 13 and 14.

Table 13: Summary Diagnostic Factor

Observations

Constraints

Competitiveness

ƷɆ MR has lost significant market share to the road sector in a short time span. ƷɆ MR passenger service is cheap but uncomfortable, unreliable, and slow. ƷɆ MR’s share of the freight transport market is insignificant. ƷɆ MR does not operate container transport services.

ƷɆ MR assets need significant upgrading if MR is to sustain its current market share and adequately serve future markets. ƷɆ MR has limited freedom to structure and price services. ƷɆ MR’s organization is not market responsive and is focused on keeping the railway running.

Assets

ƷɆ Perhaps 50% of locomotive, rolling stock, and coaches need to be replaced. ƷɆ Locomotive, rolling stock, and maintenance facilities are outdated and poorly equipped. ƷɆ Track conditions are poor and a major cause of derailments and speed restrictions. ƷɆ Signaling and train control systems are 60 years old. ƷɆ Capacity bottlenecks on Mandalay– Myitkyina are significant. ƷɆ There is no automation of information processing. ƷɆ Staff technical skills need to be upgraded.

ƷɆ Government has invested heavily in the construction of new lines, leaving little money to rehabilitate or upgrade existing physical assets or to upgrade human resources and management systems. ƷɆ Investment decisions will be complex, and MR lacks capacity in financial and cost analysis.

Operational performance

ƷɆ Asset productivity is low. ƷɆ Train performance is restricted by the condition of the tracks and rolling stock and by unreliable signaling. ƷɆ MR operates many uneconomic services in the public interest.

ƷɆ Investment is lacking. ƷɆ There is no framework to rationalize services.

Financial performance

ƷɆ Current working ratio is near 140%. ƷɆ Expenses are increasing faster than revenues. ƷɆ Freight recovers most of its costs, and its market share could be increased. ƷɆ Passenger services recover about 50% of direct costs and are not viable without restructuring.

ƷɆ There is little scope for increasing tariffs and fares. ƷɆ MR funds historic staff pensions. ƷɆ Locomotives are old and not fuel-efficient.

MR = Myanma Railways. Source: Asian Development Bank.


Table 14: Potential Solutions and Constraints Main Problems

Possible Solutions

Freight Services ƷɆ Small market share in growing market ƷɆ No strong demand for services ƷɆ High tariffs ƷɆ High empty return ratio

ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

ƷɆ ƷɆ ƷɆ ƷɆ Passenger Services ƷɆ Maintain and increase market share in an expanding market ƷɆ Uncompetitive services (cheap, slow, uncomfortable trains) ƷɆ Large operating losses

ƷɆ ƷɆ ƷɆ

ƷɆ

ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

Constraints

ƷɆ MR is not consumer responsive. Modernize handling facilities to increase share of ƷɆ Major decisions are outside bulk transport market of MR’s control. MR has little Implement container services and develop freedom to intermodal terminals and facilities ° enter into joint venture Develop new markets and expand customer base with private sector, through active marketing ° price freight and Develop reliable train services in tune with passenger services, customer requirements ° structure freight and Rationalize services to reduce operating costs and passenger services focus on core markets consistent with demand, Form joint ventures with private sector for train and operations and for operation of handling facilities ° rationalize services. and intermodal terminals ƷɆ MR must deliver many lossSecure reliable rolling stock and improve making passenger services in management of assets public interest. Develop effective pricing for services ƷɆ Investments are required Separate freight from passenger services to upgrade and modernize Develop automated data processing systems assets. ƷɆ MR is responsible for providing nonrailway (social) Reduce travel times services and for paying Reduce breakdowns and delays pensions. Improve traveler comfort and services ƷɆ MR lacks capacity in ° Acquire new coaches or DMU marketing, costing, and ° Improve on-board services pricing. Rationalize services to reduce operating cost and ƷɆ MR has limited capacity focus on core markets to analyze and prioritize ° Develop PSO contract arrangements on investments. tertiary lines and YCR ƷɆ Organization lacks focus on Secure reliable rolling stock and improve commercial freight business. management of assets ƷɆ MR lacks capacity to Develop new services to meet market demands implement and manage Separate freight from passenger services change. Separate YCR from intercity passenger services ƷɆ MR management is Introduce electronic ticketing complacent. Install automated trains to track control and ƷɆ There are no performance communication systems targets. Develop automated data processing systems

Infrastructure ƷɆ Poor track conditions a major cause of breakdowns and delays ƷɆ Network too large to maintain properly within operating budget ƷɆ Old signaling and communications

ƷɆ Bring track into a “fit-for-purpose” condition ƷɆ Mechanize maintenance (once track condition enables use of equipment) ƷɆ Privatize maintenance ƷɆ Separate infrastructure from operations ƷɆ Rationalize lines operated (consolidate network) ƷɆ Improve asset management ƷɆ Acquire new signaling, train control, and communications systems ƷɆ Increase the use of expanded fiber-optic backbone

DMU = Diesel Multiple Unit, MR = Myanma Railways, PSO = Public Service Obligation, YCR = Yangon Circular Railway. Source: Asian Development Bank.


4.1 Future Scenarios As the diagnosis and potential solutions show, there is a range of organizational and operating solutions to MR’s problems. However, to reduce the constraints, change is necessary and decisions must be made. Three reasonable policy scenarios could be adopted to address the performance of the railway sector. ƷɆ ƷɆ

ƷɆ

Business as usual. Let MR continue to operate in largely the same fashion as it does today. Extensive growth. A high growth scenario is one where MR continues to operate in the same manner as today (business-as-usual scenario), but with significant additional operational investment and subsidies to enable reduced fares and increase transport volume. Revival. A “revival” scenario will require changes in the focus of investment and changes to MR governance and possibly to MR structure.

Each scenario was examined under eight operating and investment parameters, and modeling was undertaken to develop estimated operating ratios for each scenario (Figure 30). The findings are summarized in Section 4.2, and more detail is provided in Table 15.

Figure 30: Scenario Evaluation Aspects

Staffing

Network management targets

Tariff or fare policies

Other forms of government support

Total government support

Investment priorities

Operational priorities


Traffic volumes

Scenario

Operating ratio

ƷɆ 3.0

ƷɆ 2.3–2.5

Operating ratio

Equity investment (first 5 years) Rolling stock: $50 million per year Track renewal: $50 million per year YCR and tertiary lines PSO contracts Existing railway debt taken over by government JICA/other development partner loans ƷɆ Initially, 1.0–1.3 (after PSO payments) ƷɆ Later, 0.9–1.0 (after PSO payments)

ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

ƷɆ In exchange for land value transfer, the government (i) clears MR short-term debt, (ii) takes over pension costs, and (iii) takes over provision of welfare benefits. ƷɆ YCR and tertiary lines covered by PSOs from local governments

JICA = Japan International Cooperation Agency, MR = Myanma Railways, PSO = Public Service Obligation, YCR = Yangon Circular Railway. Source: Asian Development Bank.

ƷɆ Investment: tertiary network extension: $100 million per year ƷɆ Secondary network rehabilitation: $100 million per year ƷɆ MR debt taken over by government ƷɆ JICA loans

ƷɆ Investment: tertiary network extension: $100 million annual ƷɆ MR deficit financing: $30 million per year growing to $100 million ƷɆ Government takes over debt ƷɆ JICA loans

ƷɆ Debt on investment in new lines ƷɆ None covered by government (not by MR)

Other forms of government support

Total government support

ƷɆ Moderate increase on secondary or tertiary network ƷɆ Stable until 2023, then significant increase on Yangon–Mandalay but lower than “business as usual” scenario because of possible fare increases ƷɆ Freight grows moderately then possibly to 20 million tons after Yangon–Mandalay improvement.

ƷɆ Increase by 10% per year on secondary network, increase by 5% per year on tertiary network ƷɆ Increase on Yangon–Mandalay (30 million passengers per year) and YCR ƷɆ Freight constant at marginal level

ƷɆ Decrease at 5%–10% per year on secondary or tertiary network ƷɆ Decrease until 2023 then major increase on Yangon–Mandalay ƷɆ Freight constant at marginal level

Rehabilitate then modernize trunk lines Rehabilitate secondary network Minimum maintenance on tertiary network No expansion International connections

Traffic volumes

ƷɆ Flexibility, possibly decrease ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

ƷɆ Possibly increase ƷɆ Modernize trunk lines ƷɆ Rehabilitate secondary network ƷɆ Extend tertiary network

ƷɆ No change

ƷɆ Modernize trunk lines ƷɆ Extend tertiary network ƷɆ Minimal maintenance and renewal

Staffing

Network management targets

ƷɆ Flexibility: increase or decrease depending on market conditions

ƷɆ No change

Tariff or fare policies

ƷɆ Decrease to attract greater traffic volumes and maintain competitiveness

ƷɆ Government: new lines and deficit ƷɆ Government: (i) new lines, (ii) MR deficit financing, ƷɆ Government: (i) rolling stock (freight) and track financing (iii) track renewal and rolling stock renewal, (ii) MR deficit financing ƷɆ Donors: Yangon–Mandalay and YCR ƷɆ Donors: Yangon–Mandalay and YCR ƷɆ Development partners: (i) Yangon–Mandalay and ƷɆ MR: rolling stock ƷɆ MR: rolling stock YCR, (ii) passenger rolling stock and track renewal ƷɆ MR: rolling stock

ƷɆ Consolidate services on trunk network ƷɆ Separate passenger from freight operations (possibly separate infrastructure) ƷɆ Reduce or rationalize services on secondary or tertiary network

Revival

Investment priorities

ƷɆ Increase frequency of passenger services

Extensive Growth

ƷɆ Priority: passengers over freight ƷɆ Maintain current level of services

Business as Usual

Operational priorities

Item

Table 15: Scenario Analysis



4.2 Key Scenario Findings Business-as-Usual Scenario ƷɆ ƷɆ ƷɆ ƷɆ

MR’s market shares continue to decline. Passenger traffic volumes are higher with little improvement in quality of service, except in the upgraded Yangon–Mandalay corridor. Existing assets deteriorate further as investment goes into more construction of tertiary lines. Operating losses increase, and MR’s operating ratio approaches 2.0.

Extensive Growth Scenario ƷɆ ƷɆ ƷɆ ƷɆ

It requires huge capital investment by government. Passenger traffic volumes are very high. Freight traffic is marginal. Operating losses are large, and operating ratio approaches 3.0.

Revival Scenario ƷɆ ƷɆ ƷɆ ƷɆ

ƷɆ

Service quality improves due to redirection of investment into upgrading and replacing existing assets. Passenger and freight market shares stabilize with MR business units focusing on separate freight and passenger markets. Passenger volumes increase in Yangon–Mandalay corridor. Operating losses decrease as a result of ż rationalization, ż public service obligation (PSO) contract arrangements, ż better asset management and automation of activities, ż management performance targets, and ż increased revenue. An operating ratio of 0.9–1.0 is achievable (after PSO payments).

A revival strategy is the only way to put MR on a sound financial basis for sustainable growth. Increasing the level of investment alone will not improve MR’s financial and operating performance. Simply “throwing more money” does not address MR’s organizational problems and the problems related to railway sector governance, such as those that hinder sector development and constrain MR’s financial and operating performance. A revival scenario could ultimately achieve an operating ratio of 0.9–1.0 after PSO payments, whereas the other scenarios could yield ratios in excess of 2.0, which means that the state will need to cover more significant operating losses in addition to making much larger capital investments. However, even in the revival scenario, the government will need to make significant PSO payments if it wishes to maintain a large network.


Table 16 shows preliminary estimates of financial results under each of the scenarios. Note that there are at least three phases for revival scenario because it requires consideration of changes to government policy, which will require further analysis and time for implementation.8

Table 16: Preliminary Results of Cost and Financial Modeling—Operating Ratios Scene Service

Currenta

Business as Usual

Freight

1.11

1.54

0.85

0.80

1.74

Passenger

1.78

2.32

1.35

1.07

2.92

Combined

1.73

2.27

1.32

1.05

2.84

(31,936)

(51,026)

(9,466)

933

(76,694)

Net Annual Loss (MK million)

Revival (Phase 1 and 2)

Revival (Phase 3)

Extensive Growth

a

Model results differ from actual Myanma Railways (MR) data. MR reports an operating ratio of 1.69 in 2013–2104. Source: Asian Development Bank estimates.

Implementation of the revival strategy requires a change in the relationship between MR and the government. Implementation will require ƷɆ ƷɆ ƷɆ

8

agreement with the government to change the current railway investment strategy and to avoid investments that would further deteriorate the economic viability of the railway; development of an agreed program to reform railway sector governance—new powers for MR, new institutions, and new support frameworks; and possible changes to MR’s internal organization, including separation of operating units and/or separation of infrastructure from operations.

Cost and financial modeling results are preliminary because they are based on estimates of the cost of services, which are not separated in MR’s accounts. Cost variability factors applicable to MR also need further analysis and development.

5 Key Requirements for Railway Revival Key Findings and Suggestions Reviving the railways in Myanmar is possible but requires the following: ƷɆ

ƷɆ

ƷɆ

ƷɆ

ƷɆ

Better investments. Investment levels should be maintained but should be used for rolling stock, signaling and information systems, intermodal freight facilities, and trunk lines—in effect abandoning investments in tertiary lines until the situation of the railways has improved. Rationalizing assets and services. Lines and services will need to be scrutinized for their viability. Nonviable lines or services should be financed by the central government under public service obligations (PSOs), transferred to local governments, or abandoned. Financial restructuring. This involves the government recapitalizing Myanma Railways (MR), taking over its historic debt particularly pension liabilities, and potentially converting MR’s land into equity. A new governance of the rail sector. MR should be fully separated from the government and given managerial autonomy. From the government side, a new railway department and in the long term, a railway regulator would need to be created. A new management tool is required—a corporate plan with full government policy backing. Reorganizing Myanma Railways along commercial principles. MR should be corporatized and function as a commercial enterprise. Freight should be established as a separate business unit, and separating infrastructure and services should be considered.

5.1 Changing Investment Strategies A shift in the direction of the national railway investment strategy is needed. The railway network has increased in size by 100% since 1988. Past investment in railways (which has averaged about $100 million annually since 2009/10) was directed primarily at building new railway lines to extend the network. However, new railway line construction was ill conceived and has only added to the tertiary light density component of the network, which now comprises 58% of the route network yet generates only 7% of MR’s overall traffic. As a result of neglect and of the past investment strategy, most of MR’s assets have deteriorated to the extent that MR is not able to properly serve even its existing markets. The requirement to operate many low traffic density lines has diverted MR’s scarce resources away from core trunk line services. The current level of capital investment in MR by the government ($100 million per year) needs be maintained. The focus of this capital investment must shift to rehabilitating and modernizing existing assets.

37


Broadly, investment priorities are the following: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

upgrade and modernization of locomotives, wagons, coaches, maintenance facilities, and depots; modernization of signaling and train control systems; development of intermodal facilities such as inland container depot (ICD) and container train services; modernization and rehabilitation of infrastructure in the Yangon–Mandalay corridor; improvement of track infrastructure and expansion of physical track capacity where needed (e.g., Mandalay–Myitkyina); installation of electronic data processing systems, e.g., automation of ticketing, billing, and integrated information processing to enable timely management information system (MIS) reporting; and upgrade of technical capacity of MR’s human resources.

A detailed evaluation of investments requirements must be undertaken and a comprehensive investment plan developed. Table 17 shows the capital investments identified by Japan International Cooperation Agency (JICA), and Table 18 shows capital investments proposed by MR. The investments listed in the tables do not show the full extent of investment needed to upgrade locomotives, coaches, and rolling stock and do not include estimates for installation of electronic data processing systems and for training or capacity development. MR will require technical assistance to undertake evaluation and prioritization of investments. MR lacks capacity to undertake financial analysis of investments and to analyze the impact of investments on operating costs. With ADB technical assistance, MR has developed a costing model, which will enable it to analyze losses on specific train services and railway lines and evaluate the impact of operational changes on operating costs.

Table 17: Investments Identified in the National Transport Development Plan Project

2015

2016–2020

2021–2030

Total

219

1,097

439

1,755

91

456

365

912

Yangon ICD

2

8

0

10

Mandalay ICD

2

8

0

10

New Line Yangon–Hanthawaddy

0

100

399

499

New Line Bago–Hanthawaddy

11

17

0

28

325

1,686

1,203

3,214

Yangon–Mandalay rehabilitation and modernization Myohaung–Myitkyina rehabilitation and modernization

Total

ICD = inland container depot. Source: Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

Key Requirements for Railway Revival39

Table 18: Investment Projects Presented to ADB by Myanma Railways ($ million) Investment Rolling Stock Locomotive repowering

Estimated Amount 21

Locomotive overhauling (unit exchange system)

6

Remanufacture of 30 diesel electric locomotives

30

Rehabilitation of old diesel hydraulic locomotives

7

Rail bus engine rehabilitation

2

Infrastructure

Upgrading of signaling on YCR

10

Signaling and telecom upgrading on Mandalay–Myitkyina

30

Extension of fiber-optic backbone to Mandalay–Myitkyina

60

Switch and turnout production unit Yangon–Pyay line upgrading Bago–Dawei line upgrading

2 41 100

Geotechnical engineering services (Pakokku–Kalay)

2

Training Centers

Establishment of technical training and research center in Insein

5

Upgrading of Ywataung’s Railway Technical Training Center

3

Maintenance Facilities

Shop equipment upgrading (Insein)

12

Extension of Insein facility (to serve YCR)

20

Shop equipment upgrading (Myitnge)

12

Total

363

YCR = Yangon Circular Railway. Source: Myanma Railways.

5.2 Changing the Railway Sector’s Organization and Governance Policies for restructuring the overall transport sector are discussed in the ADB 2016 publication Myanmar Transport Sector Policy Note: How to Reform Transport Institutions. This section describes a possible approach to the restructuring of the railway sector. This approach proposes changes to MR’s status as a state-owned enterprise to give it autonomy to manage operations (and more responsibility), and proposes the creation of two new entities—a railway department and a railway regulator—shown in Figure 31. There are three pillars to the restructuring strategy: stronger autonomy of MR management, a new financial deal, and a new governance structure.


Pillar 1: Autonomy of MR Management MR needs to be given the freedom to manage its operations. Ideally, this means corporatization, i.e., transforming MR’s status from a state-owned enterprise to a state-owned corporation. MR is reestablished as a corporate entity at arm’s length from the new Ministry of Transport, with an independent board of directors. With or without formal corporatization, MR needs to be given the freedom to operate and make decisions without need to obtain government approval. Decisions would be made by MR management based on sound commercial or business information and subject to oversight by the board of directors. For example, MR would need to be granted the freedom to do the following: ƷɆ ƷɆ ƷɆ

ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

Price its services in competitive markets. Setting of tariffs and fares would be MR’s responsibility, subject to some review by a regulator. Modify (rationalize) operations. MR could discontinue uneconomic services or make alternate arrangements with the private and public sector for its operation. Propose Public Service Obligations (PSOs). Nonviable investments and services imposed by the government—where railways are required to maintain low fares or to serve remote areas to satisfy national development objectives—should be compensated through a subsidy program. This process would also be subject to review by the regulator. Manage staff. MR would manage salaries, recruitment, and downsizing. Establish new services. An example would be container trains. Form joint ventures with the private sector. This is valuable in operating terminals and services. Contract with the private sector for services. Provision of rolling stock is an example. Manage its finances. This includes making decisions on investments.

Pillar 2: A New Financial Deal A corporatized MR would need to start on sound financial footing. The government should eliminate its existing debt and provide working capital (as an equity contribution) to properly capitalize the new MR and to give it financial sustainability. The government would also need to maintain its current level of capital investment and support additional capital investments, especially the rehabilitation and modernization of the Yangon–Mandalay corridor. Pension obligations and the responsibility for social services should be transferred to the government, which manages these obligations for other government employees. MR should not be directly responsible for providing medical services, schools, and other social services. If required to provide these services, MR should be compensated appropriately, similar to the operation of uneconomic railway lines. In return for the elimination of pension and social responsibilities, surplus railway land could be transferred to the government. A corporate plan would set the operational and pricing strategy, management reforms, demand, costs, financial performance and productivity targets, planned program of rationalization and investments, and intended changes to staff levels and employment policies. Initially, this could be short-term (2–4 years). This corporate plan would need to backed by a clear government policy with regards to financial support, and governance reform.


A New Role for the Government Figure 31 gives a possible new governance structure.

Figure 31: Outline of a Possible Structure of the Railway Sector Standards Safety Complaints and disputes

Enforcement Policy and planning

Railway Regulator

Ministry of Transport and Communications

Service rationalization

Railway Department

Myanma Railways

Monitoring Subsidy administration Network development


Forming a railway department within the Ministry of Transport and Communications. This department would have an integral role in overseeing the development of the railway sector. The department’s key roles would be the following: ƷɆ

ƷɆ

ƷɆ ƷɆ

ƷɆ

Coordinate the implementation of new national railway policies and plans. This role is in regard to MR as agreed with the government or as defined in legislation (e.g., by developing a new “Railway Act” or a component of a National Transport Act governing all sectors). Monitor and evaluate the performance of the railway sector. This must be based on the objectives defined by approved policies or by legislation. The department must develop proposals for changes to legislation, policies, regulations, and institutions. Supervise the railway corporation. The department must represent the ministry at the board of the company, and negotiate and supervise the implementation of the performance contract. Establish national railway safety standards. The department must develop safety rules and regulations and establish a framework to enforce them. Consistent with good industry practice in railways, this function must not reside within MR. This does not mean that the government should continuously inspect railway operations and equipment. MR must develop internal safety procedures that tells the government that MR management has implemented systems to ensure that safety rules and regulations are followed. Manage the development of the railway network infrastructure. This role would involve working with MR to develop the infrastructure component of investments plans. The government must make significant investment in the rehabilitation and modernization of track, especially in the Yangon–Mandalay corridor; the railway department would coordinate such large government investments.


Forming in the long-term a railway regulatory entity. The focus of the regulator would be to establish processes and procedures for the (i) rationalization of the railway network; and (ii) resolution of public complaints concerning passenger fares, and disputes between MR and shippers over tariffs, where competitive options are not present. It is not suggested that the regulator be an economic regulator, i.e., set rail tariffs and fares. The roles of the regulator would be the following: ƷɆ

ƷɆ

ƷɆ

Make decisions on the rationalization of the railway network. Each case would need to be examined carefully and decisions made after appropriate economic and financial analysis. Decisions could result in a discontinued service or abandoned railway line. If the regulator decided that a loss-making service should be retained in the public interest, then it would review the needed subsidy and the terms of the associated public service obligation (PSO) contract. This approach could apply to the operation of services in remote communities, light density lines, and the Yangon Circular Railway (YCR). Alternatively, the process could allow for regional governments to take over operations or for an uneconomic line to be sold. Consultation with the public would be required to support the decision process. Canada established a similar process that enabled it to successfully rationalize its railway network (Box 1). Establish a system of railway accounting and costing. With the participation of MR, this is to enable an agreed determination of the extent of losses and amounts of subsidies to be paid, or the review of fares, tariffs, and access charges. Review public complaints in regard to passenger fares, service quality, and tariffs. This would require procedures for establishing complaints and a transparent decision-making process. As noted above, review of tariffs should only be undertaken in exceptional cases, such as when shippers have no viable options. Tariffs should be a business decision between MR and its customers. Hence, freight tariffs should be confidential between the parties and not public.

The regulator could have a future role in managing access to infrastructure, which is not shown in Figure 31. If infrastructure management is separated from train operations (see Section 5.3) and infrastructure access is opened to private carriers (or to a joint venture with MR), the regulator would review access charges and establish nondiscriminatory conditions for infrastructure access (i.e., not in favor of MR) and issue licenses to carriers. Establishing a new railway environment that defines a new relationship between the government and MR is best achieved by a new law or by amendments to existing legislation. New or amended legislation support and legitimize restructuring and create an environment that would serve the railway sector over the long term (20 years).

5.3 Changing the Organization of Myanma Railways A corporatized MR would need to be accountable for results. It would need to develop realistic business and investment plans for board approval and to establish realistic performance targets to enable judgments concerning the effectiveness of its decisions and investments. It would need to develop the capacity to identify services that cannot be delivered on commercial terms and their costs, and propose to the government to either abandon them or to provide compensation (within a framework described in Section 5.2).


Box 1: Canada’s Experience in Rationalizing its Railway System In the 1960s and early 1970s, Canada’s railway sector was similar to Myanma Railways. The Canadian National Railway (CN) was government-owned, inefficient, and carried high levels of debt. The Canadian Pacific Railway (CP), although privately owned, had similar problems. The railways were losing significant shares of their markets to trucking. Railways were slow to react. They were not market-focused, and assets were not in good shape because profitability had been constrained by many years of tariff regulation and requirements to operate loss-making services in the public interest. Neither railway covered its cost of capital. In the late 1980s, the Government of Canada successfully implemented a new railway environment. Most economic regulation of railways was eliminated, and railways were allowed to develop commercial relationships through confidential contracts with their customers. This was the culmination of a service rationalization process that began in the late 1970s. Stepwise Transition to a New Railway Environment ƷɆ ƷɆ ƷɆ

ƷɆ ƷɆ ƷɆ

Canada developed a program to subsidize railway lines and services operated in the public interest. Before approving a subsidy, public hearings were held to determine if a line or service should be abandoned or subsidized. This allowed railways to rationalize their networks. The government separated passenger services from freight services and established a national passenger carrier (VIA Rail Canada). VIA operates over freight lines and negotiates track access agreements with the freight carriers. The government provides some capital investment support, but generally VIA must cover its costs through fares. Regional and remote services operated by VIA are subsidized. Intercity travel is not subsidized. The government encouraged the sale of branch lines to small private feeder railways (short line railways). They now originate over 20% of the business of the main line carriers. The government took over CN’s debt and then moved to privatize CN through a public share offering. Today, CN is a successful publicly traded shareholding company. The government implemented a subsidy program for the transport of grain by rail to export position. Previously, railways carried about 30 million tons of grain at rates that were below cost.

In 1987, Canada eliminated freight tariff regulation, except for measures to ensure that freight shippers captive to rail transport will have competitive access to rail transport. Source: Canadian Association of Railways.

MR managers lack experience in implementing this type of change. MR managers are used to taking instructions and lack experience as “business” managers. Recruitment of managers with appropriate experience and talents is necessary to implement changes to the organization. The difference in operational requirements between passenger services and moving bulk freight and containers is considerable. The public is the passenger market; businesses are the freight market. Each market requires a different degree of market intelligence, different approaches to marketing, and different train services.


The model for restructuring proposed here is to create a new Freight Business Unit. This unit may also be corporatized at some point in the future; for now, just forming business units is a complex task. Separating freight and passenger operations would allow each MR unit to focus on the specific requirements of each market segment and to tailor operations to the needs of their customers. Appendix 2 describes the concept behind separation and the scope of the freight business unit. The freight business unit would initially provide only bulk freight and container trains in the Yangon–Mandalay and Mandalay–Myitkyina corridors. Freight services on other routes and lines would be provided in mixed trains operated by the passenger business unit (as they are today). YCR is a special case. Commuter rail services and intercity passenger services also require vastly different operations. It is recommended that commuter train services not be part of the passenger business unit, which would only be responsible for intercity passenger trains. YCR could be operated as a separate business unit or only by the passenger business unit under a PSO arrangement. The YCR business unit could either be established as a public–private partnership (PPP) between a private operator and MR, or be taken over and operated by the Yangon City Government alone. In any event, YCR would likely need to be subsidized. Funds from the development of urban railway land holdings could be used for capital investments. The concept of separation of operations from infrastructure management is also raised in Appendix 3. Separation would essentially involve breaking up a vertically integrated MR. There is no consensus on the merits of the approach, unless multiple operators compete for the use of infrastructure, if access to infrastructure is opened to private railway service providers in addition to MR. However, the concept has been adopted as a policy throughout the European Union (EU). Box 2 summarizes some of the viewpoints on these matters. The problem with this approach is that MR’s operating business units could not be viable if MR is required to support the full cost of the significant investment in required infrastructure. Some degree of government support for infrastructure would always be required. Essentially, an infrastructure business unit would always require a subsidy or direct investment by government. This is another reason for supporting the formation of a unit with the proposed railway department responsible for network development.


Box 2: Perspectives on the Separation of Railway Operations from Infrastructure Management Arguments for ƷɆ

ƷɆ

ƷɆ

ƷɆ

ƷɆ

A rail service provider will be better able to focus on serving shippers or passengers or a specific market segment because the issues related to infrastructure are the responsibility of another body. Rail service providers no longer have to invest in and maintain infrastructure, so they can more easily adjust freight rates and fares to market conditions. Barriers to entry and exit of new railway service providers are reduced because the high fixed costs associated with the provision of infrastructure are the responsibility of a separate body. Separating rail service providers from infrastructure management (if it is publicly funded) makes them comparable to trucking service providers that operate on a publicly funded road network. Infrastructure investment and maintenance becomes a “public good” and can be funded or subsidized transparently. Infrastructure can be more easily rationalized by railway service providers based on demands. Government can decide to offer subsidies for certain services where no railway service providers emerge (e.g., remote services) or where public interest dictates such intervention. Technological advances in train control and communications make the separation of track from the provision of railway services feasible.


Arguments against ƷɆ

ƷɆ

ƷɆ

ƷɆ

Separation is most beneficial where several railway service providers emerge to compete on the market. In theory, this should promote greater efficiency and lead to lower costs and more competitive rates and fares and more choices for users. However, public railway service providers (i.e., formerly MR) may retain considerable market power, making it difficult for new railway service providers to be formed; thus, benefits from competition will not be realized. Railway economics are such that efficiencies are achieved by transporting large volumes of traffic over long distances. Under a separated structure, operations may actually be less efficient because multiple transportation service providers could be competing for the same traffic, which could result in smaller (less efficient) trains. If a separated structure means equal access to infrastructure, the pricing mechanism should be based on cost sharing and this will not help identify inefficiencies in the network; thus, rationalizing unproductive tracks may be more difficult. The interface between the track and running of trains is too complex to separate (e.g., track design standards and maintenance strategies affect train speeds and axleloads, which in turn affect customer service parameters such as reliability, transit time, and safety.

6 Proposed Implementation Strategy Key Suggestion Phase 1 (2015–2016): Planning. The government should task an interministerial restructuring committee and propose a time-bound restructuring plan for the railways. During this phase, MR could review the profitability of its lines, prepare a modernization investment program, form a freight business unit, and potentially launch a containerization pilot; and the government could create an embryo of the future railway department. Phase 2 (2017–2019): Start of Restructuring. During this phase, MR would be corporatized and restructured, a railway regulator would start functioning, and MR would commence its modernization investment program. Phase 3 (2020–2025): Second Phase of Restructuring. This third phase would see the full implementation of the modernization investment program. Public service obligation (PSO) programs and network rationalization would commence. Private sector involvement would be sought. Potentially, the freight market would be liberalized and MR’s business units corporatized.

The revival scenario should not be rejected for its complexity. It is a necessary strategy, but it cannot be implemented without careful planning and consideration of options. It is proposed that change be implemented over three phases.

6.1 Phase 1 (2015–2016): Planning During the planning phase, activities would include the following: ƷɆ

ƷɆ ƷɆ

46

Preparation of a medium-term rehabilitation and modernization investment strategy that would involve prioritizing investment needs and developing an investment plan to be agreed upon by MR and the government. The plan would require agreement from the government to change its investment strategy and to redirect investment to core network development, rolling stock, and other priorities. Cost analysis of lines and services to develop more precise measurements of financial performance and to determine the scope for rationalization Formation of a freight business unit to immediately address the need to develop container train services

Proposed Implementation Strategy47


Creation of marketing departments within the freight business unit and in the remaining MR that would be responsible for all other services Creation of a railway department in the Ministry of Transport and Communications Assessment of the legal requirements for implementing change, whether there is a requirement for new legislation or to amend existing legislation Examination of the scope for private participation in the provision of rolling stock and in the operation of services Preparation of a detailed time-bound restructuring plan for government approval

For the first phase to be implemented successfully, the government needs to form an interministerial MR restructuring steering committee with the power to implement changes and to approve plans and strategies prior to presentation to government. This committee would need to be constituted under the authority of the President’s Office. ADB is financing a technical assistance to advise the government during this phase.9

6.2 Phase 2 (2017–2019): Start of the Restructuring The first phase of the restructuring would involve the following activities: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

ƷɆ

ƷɆ ƷɆ

Full internal reorganization of MR, including formalizing the separation of freight into a business unit, and hiring of people to fill key posts in the new business units Full set up of the Railway Department. This would include preparing enabling legislation and legal frameworks as required for implementation. Establishment of YCR as a separate unit Government’s commitment to grant MR control over fares and services and introduction of market-based pricing by MR business units Government’s agreement to a process for rationalization of the network and for PSO subsidy arrangements as necessary Preparation and approval of first corporate plans and performance contracts Consideration of the merits of separating train operations from infrastructure management, including examination of possible mechanisms for access regulation. Development of revisions to the restructuring plan as necessary. Commencement of an approved investment program for the rehabilitation and modernization of MR assets. The investment program (and capacity building assistance) could be supported by ADB and other development partners. Possible start of first private sector participation in the provision of rolling stock, inland container depot (ICD) operation, and tertiary lines operation Development of the scope and roles of a railway regulator

This phase should be led by the interministerial committee constituted in Phase 1.

9

ADB. 2014. Technical Assistance to Myanmar for Transport Sector Reform and Modernization. Manila.


6.3 Phase 3 (2020–2025): Second Phase of Restructuring The second phase of the restructuring would involve the following activities: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

Completion of the separation of freight and passenger operations, including possible corporatization of these units Commencement of the separation of train operations from the management of infrastructure (if confirmed) Introduction of new rolling stock, signaling systems, and automated data processing Completion of the rehabilitation and modernization of the Yangon–Mandalay corridor Implementation of PSO programs and commencement of network rationalization Liberalization of the freight transport market Set up of railway regulator (if confirmed)

APPENDIX 1

Organization Chart of Myanma Railways (2015)

Managing Director 430

31469

Senior General Manager (Inspection)

General Manager

General Manager

Deputy General Manager

Manager

Manager

Upper Region Administration

Lower Region Administration

1

10

1

10

Manager (5)

Inspection

7

14

Senior General Manager (Technical and Administration)

General Manager

General Manager

General Manager

General Manager

General Manager

Deputy General Manager (3)





1. Traffic 2. Mechanical 3. Signal and Telecom

1. Passenger 2. Freight 3. Commercial

1. Administration 2. Planning

Assistant General Manager (3)





Manager (7)

Manager (5)

Engineer (18)

Manager (3)

Finance

Mechanical and Electrical

Store

Manager (4)

Manager (10)

Manager (9)

Operation

Commercial and Marketing

35

6

8428

1794

Planning and Administration 13

181

1. Finance 2. Costing

19

490

General Manager

Deputy General Manager (2) (Store)

Workshop in charge

1. Locomotion 2. Carriage and Wagon 3. Electric

5414

General Manager


327

General Manager



Deputy General Manager (Medical)

1. Administration 2. Project 3. Works 4. Bridge & Store 5. Rail & Store 6. Building & Store


22


General Manager


Assistant General Manager


Engineer (2)

Engineer (2)

Engineer (2)

Engineer (19)

Carriage and Wagon Workshop (Myitnge)

Locomotive Workshop (Ywataung)

Locomotive Workshop (Insein)

Civil Engineering

Medical

11

9

52

33

15

2490

782

1438

9724


Divisional Medical Officer (6)

Specialist (6)

367

Note: Sanctioned staff is indicated in the boxes below the units. Left side numbers indicate officer positions, right side numbers are other staff positions. The numbers in the parenthesis refer to the number of managers. Source: Myanma Railways.

49

APPENDIX 2

Example of a Restructured Myanma Railways

1 Concept The idea is that Myanma Railways (MR) should ultimately divest or reduce its role in the provision of noncore services. The “business” of a railway is to transport customers and freight. Of course track and rolling stock are needed to do this, but there is no reason why these assets (and noncore services) must be provided by MR, as they can be bought, leased, or provided by the government (Figures A2.1 and A2.2). The following sections provide an example of how MR could be separated into business units that address the railway’s primary business objectives. While the creation of a Freight Business Unit (FBU) should be prioritized, for indicative purposes, the scope and structure of separate units for passengers and infrastructure management is also shown. This appendix considers an option where MR is corporatized, and where separate business units for core services—passenger, freight, and infrastructure management—are established, which could also later be corporatized (Figure A2.3). It is recommended that commuter train services be separated entirely from MR or that Yangon Circular Railway (YCR) be operated under a public service obligation (PSO) arrangement as a separate business unit.

Figure A2.1: Myanma Railways Core Services Freight trains Intercity passenger trains

Infrastructure management

Core services


Figure A2.2: Myanma Railways Noncore Services

Pensions

Rolling stock

Infrastructure maintenance

Terminals

Noncore services

YCR = Yangon Circular Railway. Source: Asian Development Bank.

50

Welfare and medical

YCR

Example of a Restructured Myanma Railways51

Figure A2.3: Model of a Restructured Myanma Railways Myanma Railways (State Corporation)

Freight Business Unit

Passenger Business Unit

Infrastructure Management Unit


MR corporatization would have the following consequences: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

ƷɆ

ƷɆ

MR is reestablished as a state-owned corporation, with an independent board of directors. Initially, it will not be burdened by debt and will be provided with equity by the government. MR will no longer have responsibility for pension obligations, and social services will be divested to the private sector or to other public entities. MR management will be accountable for specific performance objectives for each business unit. MR will employ internationally recognized commercial accounting and auditing standards. MR will have the freedom to price and structure (and rationalize) its services. Government subsidy agreements will be established where MR is required to continue operating unprofitable services in the name of public interest. An independent regulatory entity will be established to determine whether (i) a service should be discontinued, (ii) a railway line should be abandoned, or (iii) a subsidy should be provided by the government. Safety standards and rules will be set and enforced by a government entity.

2 Scope of Passenger Business Unit The main features of the Passenger Business Unit would be as follows (Figure A2.4): ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

Operates intercity passenger trains and provides services to passengers (ticketing and onboard services) Operates mixed trains (delivers freight to communities not served by the freight business unit) Is allocated a specific number of locomotives, shunters, wagons, and “running” depots Operates rolling stock maintenance and repair facilities (initially provides rolling stock to the FBU and to Yangon commuter services, until these units make their own new arrangements, if any) Has the freedom to price services and to discontinue or amend services (subject to regulatory oversight) Has the freedom to reduce staffing levels Manages rolling stock assets and may enter into contracts with private suppliers for maintenance and repair and supply Has authority to purchase equipment, materials, and rolling stock, and to enter into contracts with service providers and to form a joint venture with the private sector

52Appendix 2

Figure A2.4: Passenger Business Unit Passenger Business Unit

GM/COO

Train service manager

Rolling stock manager

DGM/CFO

Marketing manager

Train operations

Costing and pricing

CIO

Systems development

Accounting

Passenger services

CFO = chief financial officer, CIO = chief information officer, COO = chief operating officer, DGM = deputy general manager, GM = general manager. Source: Asian Development Bank.

3 Scope of Freight Business Unit The business focus of the Freight Business Unit, initially, is to provide railway freight transport services mainly in the Yangon–Mandalay–Myitkyina corridor, and possibly Mawlamyine–Bago. Freight services on other routes will be provided by the passenger business unit (PBU) in mixed trains (Figure A2.5). The main features of the Freight Business Unit would be as follows: ƷɆ

ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

Operates mainline bulk and container trains, initially only between ż Yangon and Mandalay ż Mandalay and Myitkyina Develops and operates railway freight services in other corridors consistent with identified market demands and available resources Develops intermodal freight facilities in partnership with customers or trucking firms Develops or renews bulk handling facilities in partnership with customers Has the freedom to price services and to enter into confidential contracts with customers Has the freedom to reduce staffing levels Is allocated a specific number of locomotives, shunters, wagons, and “running” depots Pays the infrastructure management unit for use of infrastructure Initially pays the PBU for the supply, maintenance, and repair of rolling stock (until the FBU develops its own arrangements, if any) Manages rolling stock assets and may enter into contracts with private suppliers for maintenance and repair and supply


ƷɆ ƷɆ ƷɆ

Maintains separate accounting records Has authority to purchase equipment, materials, and rolling stock, and to enter into contracts with service providers and to form joint venture Must be profitable without subsidies.

Figure A2.5: Freight Business Unit Freight Business Unit

GM/COO

Freight train manager

Rolling stock manager

Bulk

Depots

Container

Contract management

DGM/CFO

Marketing manager

Costing and pricing

CIO

Systems development

Accounting


4 Scope of an Infrastructure Management Unit The main features of the Infrastructure Business Unit would be as follows (Figure A2.6): ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

Manages all government-owned track infrastructure, related structures, stations, and inland container depot (ICD) terminals Charges the PBU and FBU for using the infrastructure (under the assumption that these units cannot bear the full cost of infrastructure) Contracts for infrastructure maintenance Invests in infrastructure rehabilitation and modernization Sets targets for infrastructure delivery to customers Maintains separate accounting records Has authority to purchase equipment and materials, and to enter into contracts with service providers

54Appendix 2

Figure A2.6: Infrastructure Management Unit

Infrastructure Management Unit

GM/COO

DGM/CFO

Maintenance manager

Costing and pricing

Development manager

Accounting

CIO

Systems development

Access manager


Note that each unit has its own CFO and CIO. The intent is not to duplicate functions. There will be considerable interaction among the CIOs of each unit, since they will be the leaders in developing automation and the objective should be to operate integrated systems to the extent possible. As each unit will maintain its own accounts, separate CFOs are needed.

5 Implementation Issues The model of reorganization described above requires that legislation be developed to establish the new corporate and regulatory entities and to define their roles and responsibilities clearly. However, there are some critical issues that will need discussion and resolution to enable the new companies to function properly and to smoothly implement any restructuring. Table A2.1 describes some of the issues that will need to be considered.


Table A2.1: Issues to be Addressed in Separating Myanma Railways into Business Units Issue Allocation of locomotives

Considerations or Options ƷɆ Initial allocation should be in accordance with the number of trains currently operated. ƷɆ Each unit (including YCR) could then make its case based on projected requirements.

Allocation of coaches

ƷɆ PBU and YCR could make its case based on projected requirements.

Allocation of wagons

ƷɆ FBU should receive most wagons. ƷɆ PBU should receive some wagons for mixed trains. ƷɆ IMU will need wagons for transporting ballast and track material.

Allocation of employees

ƷɆ Each unit would prepare a business plan and identify human resource requirements. This bottom-up approach is likely to lead to staff reduction proposals.

Allocation of stations

ƷɆ Generally should be allocated to IMU, but this may be an issue with the PBU.

Track access charges for FBU and PBU

ƷɆ ƷɆ ƷɆ ƷɆ

Access charges or conditions for private trains

ƷɆ These regulations would be established by regulator and should be transparent. ƷɆ There should be no discrimination between MR and private railway service providers.

Division of infrastructure between IMU and YCR

ƷɆ The division could be based on the existing limits of the circular railway. ƷɆ A distribution of common assets (stations, signaling, and train control) would need to be agreed upon between IMU and YCR.

Maintenance of rolling stock

ƷɆ PBU would need to establish a price to be charged per unit. ƷɆ FBU could decide to elect a private supply option based on PBU price and performance.

Allocation of depots

ƷɆ Each company needs running repair (depot) facilities sufficient for its needs.

Staffing

ƷɆ Staffing levels to be established by business plans. ƷɆ Each company will need to engage professional railway managers or mentors to manage initial operations. ƷɆ It is important to attract people with the skills to perform new railway functions (marketing, pricing, customer service, etc.).

Initially, FBU and PBU would pay a fixed percentage of infrastructure costs. Units could not bear full infrastructure costs (government subsidy). Over the long term, the regulator would set or review charges. Standards for track quality and responsibilities in the event of accidents and breakdowns would need to be established.

FBU = freight business unit, IMU = infrastructure management unit, MR = Myanma Railways, PBU = passenger business unit, YCR = Yangon Circular Railway. Source: Asian Development Bank.

Myanmar Transport Sector Policy Note Railways

Better transport is essential to Myanmar’s development. After decades of underinvestment, Myanmar’s transport infrastructure lags behind other regional countries. Sixty percent of trunk highways and most of the railways need maintenance or rehabilitation. River infrastructure does not exist, while 20 million people lack basic road access. Can the transport sector deliver upon the master plan’s objectives? What is needed to improve the quality of the infrastructure and services for the industry? How can basic transport services be provided to all? How can Myanmar reduce the economic and social cost of transport? This report is an attempt to answer these questions.

About the Asian Development Bank ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to the majority of the world’s poor. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

ASIAN DEVELOPMENT BANK 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org


HOW TO REDUCE TRANSPORT COSTS



Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2016 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2016. Printed in the Philippines. ISBN 978-92-9257-459-8 (Print), 978-92-9257-460-4 (e-ISBN) Publication Stock No. RPT168051-2 Cataloging-In-Publication Data Asian Development Bank.

Myanmar transport sector policy note: How to reduce transport costs. Mandaluyong City, Philippines: Asian Development Bank, 2016. 1. Transport.

2. Transport costs.

3. Myanmar.

I. Asian Development Bank. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Attribution—In acknowledging ADB as the source, please be sure to include all of the following information: Author. Year of publication. Title of the material. © Asian Development Bank [and/or Publisher]. URL. Available under a CC BY 3.0 IGO license. Translations—Any translations you create should carry the following disclaimer: Originally published by the Asian Development Bank in English under the title [title] © [Year of publication] Asian Development Bank. All rights reserved. The quality of this translation and its coherence with the original text is the sole responsibility of the [translator]. The English original of this work is the only official version. Adaptations—Any adaptations you create should carry the following disclaimer: This is an adaptation of an original Work © Asian Development Bank [Year]. The views expressed here are those of the authors and do not necessarily reflect the views and policies of ADB or its Board of Governors or the governments they represent. ADB does not endorse this work or guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Notes: In this publication, “$” refers to US dollars. Corrigenda to ADB publications may be found at: http://www.adb.org/publications/corrigenda The fiscal year of the Government of Myanmar begins on 1 April.

Contents

Tables and Figures

iv

Foreword

vii

Acknowledgments

ix

Abbreviations

x

Executive Summary

xi

1

Transport Demand Patterns

1.1 Passenger Transport Demand 1.2 Freight Transport Demand 1.3 Role of Public State-Owned Transport Enterprises

1 1 3 6

2 Road Transport Services 2.1 Road Freight Transport 2.2 Intercity Bus Services

13 13 22

3

26

Railway Transport Services

3.1 Fares 3.2 Costs

26 27

4

33

River Transport Services

4.1 Rates and Services 4.2 Costs

33 34

5

37

Competitiveness of Each Mode of Transport

5.1 Freight 5.2 Passenger Transport

37 43

6

48

Outlook and Benefits from Operational Improvements and Policy Reforms

6.1 Analysis Framework 6.2 Baseline and Outlook without Improvements 6.3 Operational Improvements and Policy Reforms

48 50 53

iii

Tables and Figures

Tables 1 Passenger Transport Volumes by Distance, 2013 2 Freight Transport Volumes by Distance 3 1993 Transport Modal Share 4 Comparison of Transport Rates and Economic Costs, 1993 5 Potential Long-Term Modal Share 6 2013 Transport Modal Share 7 Myanmar’s Vehicle Fleet, 1990–2014 8 Freight Rates: Yangon–Mandalay, 710 kilometers 9 Freight Rates: Mandalay–Muse, 450 kilometers 10 Freight Rates: Other Corridors 11 Truck Characteristics 12 Fleet Age Distribution 13 Truck Economic Costs 14 Fleet Age Distribution 15 Surveyed Bus Operator Size 16 Long-Distance Bus Rates 17 Economic Costs of a Bus 18 Long-Distance Rail Fares, 2013 19 Myanma Railways Financial Expenses, FY2012 20 Myanma Railways Costs and Cost Coverage Ratio (Top-Down Analysis) 21 Myanma Railways Cost Coverage Ratio—Comparison of Top-Down and Bottom-Up Analysis 22 Long-Distance River Passenger Fares 23 River Vessel Cost Data—2013 Survey 24 River Freight Cost Model Parameters 25 Freight Vessel Operating Costs for a Distance of 950 kilometers 26 Freight Modal Competitiveness—Price and Speed 27 Total Transport Costs for the Shipper for a Low-Value Commodity between Yangon and Mandalay 28 Total Transport Costs for the Shipper for a High-Value Commodity Over a Distance of 250 kilometers 29 Market Shares if Mode Choice Are Purely Based on Price and Time Factors 30 Modal Market Share by Commodity 31 Myanma Railways Freight Transport Volumes, FY2013–FY2014 32 Passenger Transport Speed and Rates 33 Total Perceived User Costs per Passenger Category between Yangon and Mandalay 34 Total Perceived User Costs per Passenger Category—Other Areas 35 Comparison between Observed and Predicted Modal Shares

iv

1 4 6 7 8 8 15 17 18 18 20 20 21 23 23 23 24 27 28 30 31 34 34 35 36 38 38 39 40 41 42 43 44 45 46

Tables and Figuresv

36 37 38 39 40 41 42

Passenger Transport Costs and Modal Shares, 2013 Freight Transport Costs and Modal Shares, 2013 Long-Distance Transport Volumes Long-Distance Transport Volumes Reducing Myanmar’s Transport Costs: Benefits of Selected Measures Potential Passenger Transport Costs and Modal Shares, 2025 Potential Freight Transport Costs and Modal Shares, 2025

Figures ES1 Long-Distance Transport Modal Share Trends in Myanmar ES2 Truck Freight Rates ES3 Myanma Railways Costs and Rates ES4 Myanmar Long-Distance Transport Costs ES5 Proposed Program: Net Present Value of Benefits and Costs ES6 Impacts of Operational and Efficiency Improvements on Myanmar’s Transport Costs 1 Passenger Transport Volumes by Length of Trip 2 Passenger Transport Volumes and Modal Share on Main Corridors 3 Passenger Modal Share on Main Corridors 4 Freight Transport Volumes by Distance 5 Freight Transport Volumes and Modal Share on Main Corridors 6 Freight Modal Share on Main Corridors 7 Long-Distance Transport Modal Share Trends in Myanmar 8, 9, and 10 Unit Operating Expenditures and Revenues of State-Owned Transport Enterprises 11 and 12 Traffic Volume of Main State-Owned Transport Enterprises 13, 14, and 15 State-Owned Transport Enterprises Operating Expenses, Revenues, and Investments 16 Freight Rates 17 Annual Truck Mileage 18 Freight Rates and Financial Costs, Yangon–Mandalay Corridor 19 Bus Rates and Financial Costs 20 Myanma Railways Investment 21 Myanma Railways Estimated Assets at Replacement Value 22 Myanma Railways Estimated Depreciation Costs 23 Myanma Railways Estimated Capital Costs 24 Myanma Railways Costs and Rates 25 International Rail Rates Benchmarks 26 Modeled Vessel Costs by Distance 27 Yangon–Mandalay Corridor Transport Costs of Low-Value Commodities 28 Yangon–Mandalay Corridor Transport Costs of Medium-Value Commodities 29 Transport Costs of Low-Value Commodities in Other Areas 30 Transport Costs of High-Value Commodities in Other Areas 31 Freight Economic Costs and User Costs—Yangon–Mandalay, Low-Value Commodity 32 Yangon–Mandalay Corridor Transport Costs of Low-Income Passengers 33 Yangon–Mandalay Corridor Transport Costs of High-Income Passengers 34 Other Areas, Transport Costs of Low-Income Passengers 35 Other Areas, Transport Costs of High-Income Passengers

50 51 52 52 57 59 59

xii xiii xiv xv xvi xvii 2 2 3 4 5 5 8 9 10 11 19 20 22 25 28 28 29 29 30 31 36 39 39 40 40 42 45 45 46 46

viTables and Figures

36 37 38 39 40 41 42 43 44 45 46

Predicted Passenger Transport Matrix Observed Passenger Transport Matrix Low-Income Passenger Economic and User Costs, Yangon–Mandalay Myanmar’s Long-Distance Transport Costs Passenger Transport Volumes Passenger Transport Production Reducing Myanmar’s Long-Distance Transport Costs Yangon–Mandalay Passenger Transport Volumes, 2025 Yangon–Mandalay Freight Transport Volumes, 2025 Other Areas, Passenger Transport Volumes, 2025 Other Areas, Freight Transport Volumes, 2025

47 47 47 51 52 52 58 60 60 60 60

Foreword

M

yanmar is at a historic milestone in its transition into a market economy and democracy. After decades of isolation and stagnation, the country has, since 2011, been undergoing a fundamental political, economic, and social transformation at unprecedented speed and scope. Achieving the country’s high growth potential will require continued reforms and structural transformation, especially in advancing major investments in infrastructure, developing relevant capacities and skills, and enhancing the business environment. This will enable Myanmar to reach the ranks of upper middle income economies by 2030. Due to massive underinvestment and neglect in recent history, Myanmar’s infrastructure lags behind its Association of Southeast Asian Nations neighbors, and hinders access to markets and social services. High transport costs and associated limited access to markets and services are among the main causes of poverty and regional inequality. Twenty million people still live in villages without access to all-season roads. The questions then are: how can basic transport services be provided to all? What does it take to improve the quality of the transport infrastructure and services for the private sector? How can Myanmar reduce the economic and social costs of transport? The Government of the Republic of the Union of Myanmar is committed to addressing these questions, and the underlying issues. Toward this end, the Government has commissioned from the Asian Development Bank (ADB) the preparation of a Transport Sector Policy Note. The Transport Sector Policy Note takes stock of the transport sector challenges, provides a strategic framework for reforms that could assist Myanmar’s policymaking, and identifies the areas where international financial and technical assistance could make the highest contribution to the development of Myanmar’s transport sector.


vii

viiiForeword


JJames Nugent N Director General Southeast Asia Department Asian Development Bank

H.E. Thant Sin Maung Union Minister Ministry of Transport and Communications

Acknowledgments

T


ix

Abbreviations

ADB GDP GMS HDM IWT PRC STE

– – – – – – –

Asian Development Bank gross domestic product Greater Mekong Subregion highway development and management model Inland Water Transport People’s Republic of China state-owned transport enterprise

Weights and Measures km kph m

kilometers kilometer per hour meters

Currency Equivalents (as of December 2014) Currency unit = kyat (MK) MK1.00 = $0.0001 $1.00 = MK1,000

x

Executive Summary

The Demand for Transport in Myanmar Myanmar’s economy has so far required very few movements of goods over a long distance. At about 1.3 tons of goods per person and per year, Myanmar needs to move 3–5 times less, by weight, than countries at a similar level of development. The reason behind this exceptionalism is likely structural, linked to the way Myanmar’s economy has been organized. Myanmar’s freight rates are actually very comparable or even lower than that of other developing countries. This history makes Myanmar’s transport system ill adapted to the upcoming transformations of Myanmar’s economy that will very likely make it more freight-intensive. In particular, Myanmar’s logistics infrastructure is not geared to large movements of commodities over long distance. It lacks a performing rail or river freight transport system, and relies mostly on trucking, which ensures more than 90% of movements of freight over land. By contrast, Myanmar’s population is remarkably mobile. People make on average of two long-distance trips per person each year. For comparison, this is about the level in the United States (US) in 1960s. Passenger movements have grown 80% faster than the economy in the last 20 years. The historical role of the railways, which still moved 44% of people in 1991, has declined over the years, so that its modal share was only 10%–12% in 2013. More than 60% of people move by bus, which provides twice faster and more reliable transport, for only moderately higher prices, and almost 25% move already by car or pickup. The 5 years between 2007 and 2012 have initiated a deep transformation of Myanmar’s transport demand. On the one hand, the government lifted some of the very heavy constraints and taxes imposed on people wishing to purchase trucks, buses, or cars. Just between 2012 and 2014, the number of trucks and cars has doubled. We estimate that this policy change likely reduced freight trucking costs by about 20%. On the other hand, the government reduced its support for public road, rail, and river transport operators, which had been heavily subsidized. Since 2007, the government successively raised fuel costs, fares, the costs of imports of parts and equipment (which, until 2012, were done at the official exchange rate), while insisting that transport operators balance their books, pay for the retirement of their staff, but without much equity support if any. As a result, the market share of public transport operators has collapsed and in 2014 remained on a declining trend. In 1993, public transport operators accounted for 73% market share for passengers, which had fallen to 15% by 2013. For freight, their market share was lower (36%), but has fallen even more to 7.5%.

xi


Figure 1: Long-Distance Transport Modal Share Trends in Myanmar

Passengers

1990 3% 2%

2013 2% 2% 10% Road Rail River Air

51%

44%

86%

Freight

1990

5% 5%

2013

25%

14%

Road Rail River

61% 90%

Source: ADB estimates based on data from the United Nations Development Programme. 1993. Comprehensive Transport Study. Yangon; and from the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

The Costs of Transport In this policy note, we carry out a detailed analysis of the costs and rates charged by transport operators, drawing from the very rich data of the 2012–2013 National Transport Development Plan surveys. Our findings reveal the following patterns: ƷɆ

ƷɆ

Road sector. The road transport industry is characterized by intense competition and low rates, but also by a poor operational performance—caused by the condition of the road infrastructure. Vehicle speeds are very slow, typically below 30 kilometers per hour (kph) for a truck, 40 kph for a bus, limiting annual vehicle utilization, and raising costs. Operators compensate for this with high loading rates, even though there is no sign of systematic overloading. On the Yangon–Mandalay corridor, which bears about 60% of all transport in Myanmar, the infrastructure is better, particularly for passengers, which can use the expressway. The bus system reaches very high levels of efficiency on the Yangon–Mandalay corridor. Scope for improvements lies mainly in better quality pavement and higher loading rates for trucks. Railways. Myanma Railways has an unsustainable market positioning. This is mainly a passenger carrier; however, the poor shape of the railway infrastructure and rolling stock limits train speeds to 40 kph on the Yangon–Mandalay line (Yangon–Mandalay takes 16 hours by rail and 8 hours–9 hours by bus), and 20 kph–30 kph on other ones. Myanma Railways compensates by offering cheaper rates than buses, which tend to attract the lowest income segment of the population. Although the level of cost recovery varies by service, in aggregate, passenger revenues do not even cover the fuel

Executive Summaryxiii

Figure 2: Truck Freight Rates (¢/ton-kilometer) 18 16 14

11.8

12 10 8 6 4

5.7 3.6

2

M

ya

nm

ar

:M

ou

nt

Co ain lom ou bi sa a re Iv a or yC s oa s Ce M t nt e x M ra ico ya lA nm sia Ma l n ar co awi :I nt u n er tri na tio Ind es na on Pe l c esi op or a le rid 's B Re an ors pu gla bl de ic of sh Ch in M E a ya U thio nm ni p te ar d ia :Y St an at go es n– Br M az an da Aus il lay tra co lia rri d Ar ors ge nt in a In d Pa ia kis ta n

0

Source: ADB estimates based on project research.

ƷɆ

ƷɆ

costs of Myanma Railways let alone maintenance and operating costs. As the country develops, the share of people that can be attracted by low rates and poor quality will dwindle. We estimate that the market share of Myanma Railways would naturally fall to 2%–4% in the next 15 years, if the situation is not improved. The situation for freight is somewhat different. The rates appear high by international comparisons, and cover the running costs of Myanma Railways (though still not longterm ones). However, the government has concentrated on using the resources of Myanma Railways to operate passenger rather than freight trains and its market share appears well below potential. The scope for improvements lies mainly in reducing running costs and improving train speeds. River transport. Transport of freight by river can be competitive over medium-to-long distances, but only for the largest ships, which are not much used in Myanmar. Their use and their economic viability are severely constrained by the condition of the waterway and the condition of the river ports, which are merely landing beaches, except for Yangon. Other ships are less competitive, and compensate by pricing below their long-run costs, hampering the development of the industry. There is scope for reducing river transport costs by a factor 2 to 3. Competitiveness. The comparison of the underlying economic costs of each mode of transport— not considering the impact of subsidies and underpricing—shows that at their current levels of efficiency, rail and river transport are competitive vis-à-vis trucks only beyond 800 kilometers (km). This is very uncommon by international standards—but also reveals the scope for making efficiency improvements and reducing costs. In the passenger market, the situation is even more striking: should rail be priced at its economic costs without offering better services, it would simply not have any customers. We find that Myanma Railways cannot actually increase its revenues by raising fares, at least until it improves the quality of its services.

xivExecutive Summary

Figure 3: Myanma Railways Costs and Rates (kyat/ton- or passenger-km) 45

5

40

Rates

7

35 30

10

30

25

3 4

20

5

15 25

10

10 15

5 0 Freight Variable costs

Above rail capital costs

Passengers Fixed costs

Below rail capital costs

km = kilometer. Source: ADB estimates based on costing model developed under the ADB. 2014. Technical Assistance to Myanmar for Transport Sector Reform and Modernization. Manila.

A Potential Modernization Program Our estimates put Myanmar’s long-distance transport costs at $4.8 billion ($1.2 billion for freight and $3.6 billion for passengers), which is 8.0% of Myanmar’s gross domestic product (GDP) (Figure 4). We see scope for reducing these costs by 29% through a limited modernization program combining investments and policy reforms—some of which being already initiated. The main propositions—a number of which being already started by the government—are the following: Road Sector ƷɆ

ƷɆ

ƷɆ

ƷɆ

Measure 1: Allow trucks on Yangon–Mandalay expressway. There is no strong reason for keeping trucks on the parallel highway, which is longer and in poorer shape. Together with a moderate improvement of the expressways’ running surface and its safety, this measure could bring $10.7 billion in transport cost savings to Myanmar over the next 15 years. Measure 2: Improve the Greater Mekong Subregion (GMS) North Road corridor to the People’s Republic of China (PRC). This road carries 13% of all freight in Myanmar and 70%–90% of its official border trade, but a number of sections are in extremely poor shape. This very viable investment could bring $7.7 billion in savings over 15 years, it seems, but it has not yet been initiated. Measure 3: Improve the GMS East–West Road corridor to Thailand. Improvements on this corridor, which carries 10%–30% of Myanmar’s border trade, are underway or being prepared with assistance from the Asian Development Bank (ADB) and the Government of Thailand. Conclusion to these improvements will provide the country’s first quality connection to Thailand, generating at least $1.7 billion in savings over 15 years. Measure 4: Rehabilitate and/or pave with asphalt concrete the next 3,000 km of highways with the highest traffic. Myanmar’s trunk roads have generally sufficient capacity for the traffic they carry, but poor surfacing. A large program to rehabilitate roads with the highest traffic, and to

Executive Summaryxv

Figure 4: Myanmar Long-Distance Transport Costs ($ million) 310 Total: $4.8 billion

85

130

1,930

Freight $1.2 billion

1,080

25

Passengers $3.6 billion 50 1,200

Vehicle operating costs Other costs (time, access, terminal)

Road

Rail

River

Car

Bus

Rail

River

Air

Source: ADB estimates based on model developed for the study.

ƷɆ

upgrade them to asphalt concrete standards, would cost $2 billion over 10 years, but would bring as much as $30 billion in savings over 15 years. Measure 5: Widen 1,000 km of narrow highways with traffic exceeding capacity. We estimate that 1,000 km of highways (280 km of narrow 12-feet highways and 750 km of 18-feet highways in addition to the corridor needs identified above) require widening. This would cost about $530 million, with a benefit-to-cost ratio of 1.8.

Rail Sector ƷɆ

ƷɆ

ƷɆ

Measure 6: Improve the Yangon–Mandalay rail line. Myanmar has started the rehabilitation and improvement of the main trunk railway corridor. Its modernization should enable the Myanma Railways to take a large share of the passenger transport market, and potentially also freight. We note, however, that by the time the investment is complete, train commercial speeds are reported to only reach 65 kph, which will still be slower than buses and cars. The investment appears viable, but only moderately. Should a higher commercial speed be possible (e.g., 80 kph or more), economic returns could be much higher. Measure 7: Rehabilitate selectively secondary rail lines. We believe that some secondary lines should be rehabilitated but find no viability in a program to rehabilitate all lines. Rehabilitation decisions should be taken on a case-by-case basis, where rail can take a clear competitive advantage against car or bus travel. They should go together with a program to reduce the Myanma Railways costs. Measure 8: Develop rail freight. We estimate that rail freight could capture between 7% and 15% of the market, putting its potential market by 2025 between 12.5 million tons and 27.0 million tons of commercial freight—a scale jump from the 2013 levels (1 million ton). Doing so would require new investments in rolling stock, loading facilities, and a strong market development effort. It would likely require a new organizational structure dedicated to freight (as discussed in the rail sector policy note). We find that such investments would likely be very viable, and bring cost savings to Myanmar in the range of $2.3 billion over 15 years.

xviExecutive Summary

River Transport Sector ƷɆ

ƷɆ

Measure 9: Improve Ayeyarwaddy riverbed and navigation conditions up to Mandalay. The program of limited improvements of the Ayeyarwaddy navigation channel initiated with World Bank assistance should gradually bring the minimum river depth to 2 meters, which seems amply sufficient in the foreseeable future to meet river transport needs in Myanmar. We think that if it is fully carried out over the entire river, benefits over 15 years could reach $3 billion, making it a very efficient place to invest. Measure 10: Develop river ports with mechanized loading. Alone, riverbed improvements would not solve all sector issues. The next binding factor to be tackled is river ports. Mechanized loading facilities in the river ports with highest traffic would have a dramatic effect on vessel utilization rates, making the largest vessels competitive.

Policy Measures ƷɆ

ƷɆ

Measure 11: Increase legal axle loading. The allowed maximum axle load is 10 tons, low in comparison with developed countries. Increasing it by 15% would reduce Myanmar’s road freight transport costs by 13% for a benefit $2.8 billion over 15 years. Associated costs could be kept moderate. Our ballpark figures put it at only $260 million, if higher pavement requirements are integrated in new construction and rehabilitation efforts. Measure 12: Improve the efficiency of the road user charging system. A separate policy note on the road user charging system argues for an increase in road tolls on vehicles, particularly cars, and to a lesser extent, buses, and introducing a fuel tax at a rate of ¢10 per liter and an axle loading tax. Our model estimates annual benefits to be $3.1 billion over 15 years, not even including the benefits of reducing transport externalities.

Figure 5: Proposed Program: Net Present Value of Benefits and Costs Restructure road user charges Reduce road accidents by 20% Allow trucks on expressway

Benefit / Cost Ratio

8.2

Develop rail freight 5.9

Northern GMS road corridor Rehabilitate trunk highways

5.0

Increase legal truck axle load

3.8

Yangon–Mandalay rail link

2.9

East–West GMS road corridor

2.8

Mechanize river ports

2.5

Widen all trunk highways

18.5 18.4

Ayeyarwaddy river navigation

Rehabilitate secondary rail lines

21.0

0.8

Costs ($ million)

Benefits ($ million)

0.2 –5,000

GMS = Greater Mekong Subregion. Source: ADB estimates based on model developed for the study.

0

5,000

10,000

Executive Summaryxvii

ƷɆ

Measure 13: Reduce road accident rate. A 20% reduction in Myanmar’s very high road accident rates would bring a benefit over 15 years of $5.7 billion. More importantly, it would save 40,000 lives during that period.

Figure 5 summarizes the costs and benefits of each measure, ranked by their benefit-to-cost ratio.

Benefits Expected from Modernization Such modernization would bring large cost savings and support faster economic growth. Altogether, the program highlighted above would reduce by 29% Myanmar’s transport costs—20% for passengers and 36% for freight. For a cost of $5 billion–$6 billion, it would bring $84 billion in cost savings over 15 years. These savings could in turn raise Myanmar’s economic activity by 13% by 2030, an increase in GDP of $40 billion. The measures would also strongly improve the competitiveness of rail and river transport. By 2025, rail’s share could reach 34% in passenger transport and 7%–12% in freight transport. River transport’s share would keep on shrinking for passenger transport to 0.3%, but could rise for freight transport to 18%.

Figure 6: Impacts of Operational and Efficiency Improvements on Myanmar’s Transport Costs ($ million, 2013 basis) Long-distance transport costs in $ million per year 5,000 4,800

5

4,600

4 3

$ million

4,400 4,200

2 1

4,000

7

3,800

6

8

9

3,600

12

3,400

13

11

3,200 3,000

29% Reduction potential

10

Baseline (2013)

Road improvements

Rail improvements

Transport investments and operational changes tested: 1. Allow trucks on the Yangon–Mandalay Expressway 2. Improve GMS Northern Corridor highway to the PRC 3. Improve the GMS East–West Corridor highway to Thailand 4. Improve the pavement of 3,000 km highways 5. Widen 1,000 km narrow highways 6. Improve the Yangon–Mandalay railway line 7. Rehabilitate 1,500 km secondary rail lines

River Policy Changes improvements

Potential

8. Develop rail freight 9. Improve the Ayeyarwady river bed to 2 meters 10. Improve river ports 11. Increase by 15% the legal truck axle load 12. Improve the road user charging system 13. Reduce by 20% the road accident rate

AC = asphalt concrete, GMS = Greater Mekong Subregion, km = kilometer, PRC = People’s Republic of China. Source: ADB estimates based on model developed for the study.

1 Transport Demand Patterns Key Findings The road travel mode largely dominates Myanmar’s transport sector. Cars and buses move 85% of people over long distances. Trucks meet 90% of Myanmar’s inland freight transport needs. Almost two-thirds of all long-distance transport takes place on the Yangon–Mandalay corridor, if including both the Yangon–Naypyitaw–Mandalay branch and the Yangon–Pyay–Magway–Pakokku–Mandalay branch. Together with the Greater Mekong Subregion (GMS) North–South corridor and the GMS East–West corridor, they form the backbone of Myanmar’s transport system. The 2007–2012 period has marked a clear break in trends for transport in Myanmar. Freed from former constraints, the truck and bus industry has boomed. Meanwhile, government transport enterprises, mainly Inland Water Transport, Myanma Railways, and Road Transport, which had failed to modernize over the previous 20 years, saw their market share collapse, and their financial situation severely deteriorate.

1.1 Passenger Transport Demand Overall demand and modal split. Myanmar’s long-distance passenger transport demand is estimated to be about 103 million trips per year. This corresponds to just 2 trips per person per year, a low level by international standards. Bus is the preferred mode of transport, carrying almost two-thirds of long-distance passengers (60% by volume, 67% by passenger-kilometer [km]). We estimate that the rail’s share is 12% when measured in volume, and 11% when measured in passenger-km. The National Transport Development Plan puts this share at 18% but this figure is not compatible with official data of Myanma Railways, which we choose to follow. River travel plays a small role in passenger transport, but is still significant in some areas, and air transport is still limited.

Table 1: Passenger Transport Volumes by Distance, 2013 (million passengers-year)

Car Bus Rail River Air Total

100– 200

200– 400

15.0 17.7 3.8 0.2 0.0 36.6

7.4 18.5 4.4 0.6 0.0 31.0

Length of Trip in km 400– 600– 600 800 1.9 12.8 2.0 0.5 0.9 18.0

1.8 9.3 1.2 0.2 0.3 12.8

800– 1000

1000– 1200

0.0 2.2 0.6 0.1 0.2 3.1

0.0 1.5 0.0 0.0 0.1 1.6

Total

Modal Share by Volume

Total Billion Pass-km

Modal Share by Pass-km

26.1 62.1 12.0 1.5 1.5 103.2

25% 60% 12% 1% 2% 100%

6.4 24.4 4.2 0.6 1.0 36.6

17% 67% 11% 2% 3% 100%

km = kilometers, pass-km = passenger-kilometers. Totals may vary due to rounding. Source: ADB estimates, using data from the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

1

2Myanmar Transport Sector Policy Note: How to Reduce Transport Costs

Figure 1: Passenger Transport Volumes by Length of Trip (million passengers-year) 40

million

30 20 10 0 100–200

200–400

400–600

600–800

800–1,000 1,000–1,200

km River

Rail

Bus

Car

Air

km = kilometer. Source: Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

Demand by corridors. Myanmar’s transport system is dominated by the Yangon–Mandalay corridor, which accounts for 64% of all trips if considering together the Yangon–Naypyidaw–Mandalay corridor and the parallel corridor Yangon–Pyay–Magway–Mandalay. Modal share by corridors. Road travel—usually by cars and buses—dominates in most areas. The main exception is the Mandalay–Myitkina corridor, where travel by road is such a poor option that railway (60%

Figure 2: Passenger Transport Volumes and Modal Share on Main Corridors (million passengers) 25 20 15 10 5

py

ay N

Ya n

go

n–

N ay p ita w– yita w Ya M ng an M on da an –H lay da lay pa –M –A Ya n– us ng e M on ya w –P ad ya dy M y– Ta a M ch nd ag ile ala wa k– y– y M M ei yit kt k ila –K yna M ya ag uk wa py y– u M a Ya nd ng ala on y –P M at an he da in lay Lo –T ika a w– mu M aw M ag lam wa yin y e– D aw ei

0

Air

Car

Bus

River

Rail

Source: Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

Transport Demand Patterns3

Figure 3: Passenger Modal Share on Main Corridors (%) 100 75 50 25

wa y e– D aw ei yin

M

aw

lam

ika

w–

M

ag

am u

–T Lo

M

an

da

lay

–P

at

he

in

y da la

an

on ng

Ya

M

ag

wa

y–

M

ya

–K ila

ch

ile

k–

M

ei

kt

da an M

a uk py u

yn

y

yit k

wa ag lay

ya –P

–M

M

wa

y–

ya M

n–

on ng

Ya

Ya

Ta

ng

on

dd y

us e –M –A

–H

pa

M

an

da

lay

an M

w– ita

py ay

N

Ya

ng

on

–N

ay

py

ita

da la

y

w

0

Air

Car

Bus

River

Rail


modal share on the corridor) and river take up part of the demand. Another exception is the Ayeyarwaddy Delta, where river transport plays a moderate role (e.g., 10% share on the Yangon–Pathein corridor). Growth rates. A comparison with the baseline established by the 1991 Comprehensive Transport Study shows that demand has grown at 8.4% a year in the last 20 years. Because the economic growth rate during that period is estimated to have been only 4.7%, this would imply a high elasticity of passenger transport to growth of 1.8.

1.2 Freight Transport Demand Overall demand and modal split. Myanmar’s long-distance freight transport demand is estimated to be 68.6 million tons per year (not considering coastal and international sea transport). This corresponds to just 1.3 tons per person per year, a strikingly low level by international standards. This issue is further analyzed in the last section. Truck is by far the preferred mode of transport, carrying almost 90% of long-distance freight. Rail transport’s share is at most 5%, and if considering only commercial rail freight, which reached just 1 million tons in 2013, barely reaching 1.5%. River transport plays a moderate role for freight transport, mainly on the Yangon– Mandalay corridor. Demand by corridors. As for passenger transport, the freight market is dominated by the Yangon–Mandalay corridor, which accounts for 67% of all trips, if one considers its two parallel branches. The second most important corridor is the Mandalay–Muse corridor (this is a segment of the North–South Greater Mekong


Table 2: Freight Transport Volumes by Distance (million tons/year) Length of Trip in km

Truck

Total


Total Billion Ton-km

Modal Share by Ton-km

1.1

61.1

89%

25.8

88%

0.0

0.0

3.7

5%

1.7

6%

100200

200400

400600

600800

8001000

10001200

14.8

15.5

14.6

14.1

1.0

0.7

0.7

0.7

1.5

Rail River

0.9

0.5

1.1

1.3

0.0

0.0

3.9

6%

1.8

6%

Total

16.4

16.8

16.4

16.8

1.1

1.1

68.6

100%

29.3

100%

km = kilometer. Note: Totals may not add up due to rounding. Source: ADB estimates based on data from the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

Subregion [GMS] corridor) linking with the People’s Republic of China (PRC), which moves about 11 million tons annually, accounting for 17% of Myanmar’s land transport task and 70%–90% of its official border trade.1 The Yangon–Hpaan–Myawaddy is the third corridor by order of importance (partly coinciding with the GMS East–West corridor), but most of its traffic is national— international traffic being limited by the poor condition of the road link to Thailand at Myawaddy.

Figure 4: Freight Transport Volumes by Distance (million tons/year) 20

million

15 10 5 0 100–200

200–400

400–600

600–800

800–1,000

1,000–1,200

km Road

Rail

River

Source: ADB estimates based on data from the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

1

Greater Mekong Subregion Freight Transport Association (GMS FRETA). 2013. Private Sector Views on Road Transport along the Yangon–Mandalay–Muse/Ruili–Kunming Corridor. Manila.


Figure 5: Freight Transport Volumes and Modal Share on Main Corridors (million tons) 25 20 15 10 5

k–

M

y ag

Lo

ika

w–

M

–T lay

da an

wa

am u

he at –P

on

M

M

in

y da la

wa

Ya

ei

ag

kt

ng

y–

–K

M

ya

an

uk

ky yit ila

lay da

an M

ng

Ya

Ta

ng

ch

ile

Ya

py u

na

y wa –M

M y–

ya –P on

-A pa

–H

ag

wa ya M

n–

da on

N

dd y

us e –M

lay

an an M

ay

Ya

py

ng

ita

on

w–

–N

M

ay

py it

da la

y

aw

0

Road

Rail

River


Figure 6: Freight Modal Share on Main Corridors (%)

y M ag

wa

u am

w– ika Lo

da

lay

–T

at M

ng

an

on –P

an M Ya

y– wa

ch

M ag

he in

lay da

kp au

–K y ila

ile k–

M

ei kt

da an M

yu

na

–M

yit

ky

wa y lay

y–

M ag

wa d ya

Ta

Ya n

go

Ya

ng

on

–P

M ya

lay

–A n–

pa

da n– H

dy

e –M us

lay da

w– M an

M an

py ay N

Ya

ng

ita

on

–N

ay

py

ita

w

100 90 80 70 60 50 40 30 20 10 0

Road

Rail

River



Modal share by corridors. Trucks dominate freight transport in most corridors. On the Yangon–Pyay–Magway and Magway–Mandalay corridors, river transport plays an important role, but this is largely for movements of goods between Yangon and Mandalay, so that its market share over the complete corridor remains moderate. River transport takes half of the transport market in the delta area over short distances between Yangon and Pathein. The Mandalay–Myitkina corridor is again a special case, but less so than for passengers: the combined share of rail and river transport is only 35% for freight (70% for passengers). Rail transport does not catch more than 10% of the freight market on any other corridor.

1.3 Role of Public State-Owned Transport Enterprises Situation in Early 1990s In 1993, state-owned transport enterprises (STEs) dominated the long-distance transport market. Inland Waterway Transport (IWT), Myanma Railways, and Road Transport, together with smaller specialized stateowned enterprises accounted for 35% of the freight transport market and 73% of passenger transport market. The Comprehensive Transport Study, financed by the United Nations, and managed by the World Bank, provided an in-depth account of the situation of the transport sector in Myanmar at the beginning of the 1990s.2 While very competitive and apparently profitable, STEs were not sustainable. To quote the Comprehensive Transport Study: “STEs’ tariffs were substantially lower than those paid to private operators.” “The tariffs charged by the private sector came close to covering financial costs, but those of STEs were much too low to guarantee long-term sustained operations.” STE revenues covered their immediate operational costs. However, because STE revenues did not cover asset depreciation (or only at book prices) and capital costs, “STEs were dependent on government financing for fleet replacement,” expansion, and infrastructure improvements.

Table 3: 1993 Transport Modal Share (%) Passenger Transport Share

STEs’ share for each transport mode

Freight Transport Share

STEs’ share for each transport mode

Road

50

50

61

6

Rail

44

100

14

100

River transport Others Total

3

80

22

70

2 (air)

100

3 (coastal)

100

100

73

100

36

STE = state-owned transport enterprise. Note: Totals may not add up due to rounding. Source: ADB estimates based on data from the United Nations Development Programme. 1993. Comprehensive Transport Study. Yangon.

2

United Nations Development Programme. 1993. Comprehensive Transport Study. Yangon.


Implicitly transport fares of STEs were heavily subsidized, not resembling real economic costs. This was because (i) STEs had privileged access to government-subsidized fuel; (ii) they imported foreign equipment and parts at the official exchange rate, far below the black market one; (iii) they depreciated assets at their book value, not accounting for inflation and foreign exchange variations; and (iv) capital for investment was provided free of charge by the government. STE freight rates were only 5%–50% of actual costs, and passenger rates were 10%–50% of actual costs. Both Myanma Railways and IWT had prices at 80%–95% below costs. Road Transport’s prices bore closer resemblance, but were still generally 50% below costs. Subsidized rates compensated for the inefficiencies of STEs. Contrary to the international “norm,” the road transport mode proved more economical than the rail and river transport for moving freight or passengers, except for very long distances. Within the road and river transport modes, private operators were more efficient than public ones. Were it not for all these distortions, Myanma Railways and IWT would have no clients, and private road transport would always have been the mode of choice (Table 2). Reform and modernization had the greatest potential in railway and river transport modes. Based on a detailed costing, the Comprehensive Transport Study found scope for reducing road costs by 10%–15%, rail costs by about 50%, and river transport costs by 60%–70%. It recommended that the government carry out these changes and raise STE tariffs so that they cover long-term costs. After the improvement and tariff changes, Myanma Railways and IWT would be sustainable and would compete advantageously on most transport markets. The modal share of rail transport would increase, and that of river transport would be at a comfortably high level.

Table 4: Comparison of Transport Rates and Economic Costs, 1993 (MK) Road Distance (km)

Rail

STE Tariffs

Private Tariffs

Economic Potential Costs Reduction

STE Tariffs

100

109

250

375

12.0%

32

726

250

273

625

660

13.5%

80

500

545

1,250

1,138

14.2%

100

17

40

44

250

43

100

500

85

200

River Transport


STE Tariffs

Private Tariffs


47.2%

22

100

828

73.3%

976

50.4%

55

250

1,000

66.0%

160

1,394

53.2%

110

500

1,289

58.3%

10%

13

75

47.2%

10

15

93

73.3%

92

16%

33

155

50.4%

25

40

152

66.0%

167

17%

65

297

53.2%

50

75

242

58.3%

Freight

Passengers

km = kilometer, MK = Myanmar kyat, STE = state-owned transport enterprise. Source: United Nations Development Programme. 1993. Comprehensive Transport Study. Yangon.

Situation in 2013: “What Happens When the Tide Goes Out” In 2013, private transport by truck or bus has become dominant. STEs play only a marginal role in the overall transport task. The modal share of transport by rail and inland waterway was reduced by 75% in 20 years (Table 5 and Figure 7).


Table 5: Potential Long-Term Modal Share (forecasts for 2005) Passenger Transport Share (%)

Freight Transport Share (%)

Road

55

53

Rail

40

23

River transport

2.5

20

2.5 (air)

4 (coastal)

100

100

Others Total

Source: United Nations Development Programme. 1993. Comprehensive Transport Study. Yangon.

Table 6: 2013 Transport Modal Share (%) Passenger Transport Share

Percentage of Government-Owned

Freight Transport Share

Percentage of Government-Owned

85.5

5

80.7

1

Rail

10

100

4.6

100

River transport

2.5

25

4.8

27

2 (air)

13

9.9 (coastal)

n/a

100

~15

100

~7.5

Road

Others Total

n/a = not available. Source: ADB estimates based on data from the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

Figure 7: Long-Distance Transport Modal Share Trends in Myanmar

Passengers

1990 3% 2%

2013 2% 2% 10% Road Rail River Air

51%

44%

86%

Freight

1990

5% 5%

2013

25%

14%

Road Rail River

61% 90%

Source: ADB estimates based on data from the United Nations Development Programme. 1993. Comprehensive Transport Study. Yangon; and the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.


As of 2013, STEs have lost part of their price advantages against the private sector. Between 2007 and 2012, government raised the price of subsidized fuel until the dual system was eliminated. In 2012, the government allowed private companies to hold foreign currency accounts and gradually eased their licensing and equipment imports, particularly on trucks and cars. In 2013, it floated the currency, putting the cost of foreign exchange at the same level for STEs and private operators, a 12,700% increase for STEs. As a result, between 2007 and 2011, all three STEs posted operational losses. STEs have tried since 2011 to balance their books, at the cost of a sharp reduction in their traffic. In 2007, Myanma Railways and IWT did not raise their tariffs to compensate for the higher fuel costs (tariffs remained flat in real terms). Road Transport did raise rates, but traffic went down. As a consequence, STEs’ revenues became less than cash expenses after 2007. In 2011 and 2012, as costs went up again, STE were allowed to raise rates. Between 2011 and 2012, Myanma Railways and IWT could raise rates by about 300%. Despite the rate increases, the STEs still seem financially unsustainable. IWT revenues were slightly above direct operational expenses in 2012, and slightly below in 2013. However, because operational expenses do not include depreciation and financial costs, IWT may be covering only 70% to 80% of its actual costs. Myanma Railways seems in a worse financial situation. Despite the rate increases, revenues only moderately increased in 2012. They may have decreased in 2013 in case the drop in traffic could not be compensated for with higher fares (actual revenues figures not yet available). As a result, the revenues of Myanma Railways cover only 60%–70% of its direct operating expenses.

Figure 8, Figure 9, and Figure 10: Unit Operating Expenditures and Revenues of State-Owned Transport Enterprises (Constant 2013 $ per 1,000 passenger-mile or ton-mile) Myanma Railways

Inland Waterway Transport

40 40

35

Road Transport 40 35

35

30

30 30

25

25 25

20

20 20

15

15

15 10

10

10 5

5

5

Freight revenues / ton-mile Revenue per unit of traffic

FY1990 FY1995 FY2000 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012

FY1990 FY1995 FY2000 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 Passenger revenues / pass-mile

0

FY1990 FY1995 FY2000 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

0

0

Passenger revenues / pass-mile Passenger revenues / pass-mile Freight revenues / ton-mile

Freight revenues / ton-mile Expenditures / unit of traffic

Expenditures / unit of traffic

Pass = passenger. Note: Unit of traffic is the sum of the number of passenger-mile and ton-mile. Source: ADB estimates based on data from the Ministry of National Planning and Economic Development and United Nations Development Programme. 1993. Comprehensive Transport Study. Yangon.


Figure 11 and Figure 12: Traffic Volume of Main State-Owned Transport Enterprises (million ton-mile or million passenger-mile) Passenger Transport

Freight Transport 2,000

6,000

1,800

5,000

1,600 1,400

4,000

1,200

3,000

1,000 800

2,000

600 400

1,000

200

FY

00 20 0 FY 4 20 0 FY 5 20 06 FY 20 0 FY 7 20 0 FY 8 20 0 FY 9 20 1 FY 0 20 FY 11 20 FY 12 20 13 FY

95

20 FY

90

19

19

FY

FY

19 FY 90 19 FY 95 20 0 FY 0 20 FY 04 20 FY 05 20 FY 06 20 FY 07 20 FY 08 20 FY 09 20 FY 10 20 FY 11 20 FY 12 20 13

0

0

MR

IWT

Road Transport

MR

IWT

RT

FY = fiscal year, IWT = inland water transport, MR = Myanma Railways, RT = road transport. Source: ADB estimates based on data from the Ministry of National Planning and Economic Development and United Nations Development Programme. 1993. Comprehensive Transport Study. Yangon.

There are no data on private road transport volumes between 1990 and 2013, since Myanmar has only kept track of public transport freight operators. We propose the following interpretation of trends: ƷɆ

ƷɆ

ƷɆ

ƷɆ

The modal share of river and railways is directly linked to the performance of the STEs, since Myanma Railways holds a monopoly over railway transport, and IWT accounted for most of river transport. Between 1990 and 2013, the cheap prices of STEs prevented them from renewing their equipment and maintain the quality of their services. Their total production capacity barely increased after 1990 and the condition of the equipment degraded. Poorer services but cheaper prices than private operators have also led STEs to gradually concentrate on low-income passengers and on captive demand (e.g., government staff for Road Transport, cross-river ferries for IWT, government freight for Myanma Railways). The Myanma Railways practically has refrained from developing commercial freight by giving priorities to passenger traffic and low-revenue lines when allocating its rolling stock. These markets have actually regressed—the share of low-income travelers reduces as the country grows, government staff prefers to travel with private bus, new bridges have reduced the use of ferries, and government freight has retreated with the size of the government’s state-owned enterprises. A dynamic private sector has filled the gap, with severe constraints until 2012 to vehicle imports and a price disadvantage, and with fewer constraints after 2012, leading to a quick increase in private services. The STEs maintained or moderately increased volume, but their share quickly decreased as the market was growing.


Figure 13, Figure 14, and Figure 15: State-Owned Transport Enterprises Operating Expenses, Revenues, and Investments (constant 2013 $ million)

Revenues

Expenditures

Road Transport

Investments

Revenues

Expenditures

FY2013

FY2012

FY2011

FY2010

FY2009

FY2008

FY2007

FY2006

FY2005

FY2004

FY2000

FY1995

FY1990

FY2012

FY2011

20 18 16 14 12 10 8 6 4 2 0 FY2010

FY2009

FY2008

FY2007

FY2006

FY2005

FY2004

FY1995

FY1990

18 16 14 12 10 8 6 4 2 0

FY2000

Inland Water Transport

Investments

Myanma Railways 160 140 120 100 80 60 40 20

FY 19 90 FY 19 9 FY 5 20 00 FY 20 0 FY 4 20 0 FY 5 20 0 FY 6 20 0 FY 7 20 0 FY 8 20 0 FY 9 20 10 FY 20 1 FY 1 20 1 FY 2 20 13

0

Revenues

Expenditures

Investments

Source: ADB estimates based on data from the Ministry of National Planning and Economic Development and United Nations Development Programme. 1993. Comprehensive Transport Study. Yangon.


ƷɆ ƷɆ

The situation of the STEs worsened between 2007 and 2015, during which they lost about half of their volumes. Altogether, the poor management of the STEs during the last 2 decades has led to the current dominance of private road transport. The upside is that the current modal split does not reflect the true potential of rail and river transport, the modal share of which may rise with better policy and management as well as operational improvements.

The next sections analyze the potential and constraints of each mode. The approach replicates the framework of analysis of the Comprehensive Transport Study. It analyzes the financial and economic costs for each mode of transport, reviews the competitiveness of each mode, analyzes the importance of economic distortions, and analyzes the costs and benefits of various transport improvements.

2 Road Transport Services Key Findings The truck industry is experiencing a quick transition. Since the government removed constraints and reduced taxes over imports of trucks in 2011, the number of trucks has doubled. New large trucks operating at 20% lesser costs are quickly replacing the older medium-sized trucks. Operating margins appear very small, the sign of an intensely competitive market. The efficiency of the truck industry remains constrained by the quality of the road infrastructure. Poor road condition and low vehicle speeds limit vehicle utilization rates and increase fuel consumption. Myanmar’s trucking costs are generally in line with other countries, but our international comparison shows scope for cost reductions. This is particularly the case on international corridors, where costs are much higher than average. Myanmar’s bus industry is functioning at a high level of efficiency, also in a strongly competitive market. On the Yangon–Mandalay corridor, the buses offer quality, low-cost services as they can use the expressway. Efficiency, speeds, and costs are constrained on other corridors by the poor condition of the roads.

This section reviews the road sector, focusing on services. It does not review the type and condition of the road network, which is analyzed in the 2015 ADB publication, Myanmar: Transport Sector Policy Note: Trunk Roads.

2.1 Road Freight Transport Fleet. There were 138,000 trucks registered in Myanmar as of June 2014, of which 53,000 were heavy-duty trucks. In 2011, the government relaxed requirements and taxes to import heavy vehicles. The trucking fleet doubled in size between 1990 and 2011 and doubled again in just 2 years between 2012 and 2014. Operators. There were 7,112 registered trucking companies in 2011 in Myanmar. As of 2010, it was reported that the largest private operator had 17 trucks, and that none provided nationwide services. However, by 2013, surveys carried out in areas other than Yangon identified five operators with 50 trucks or more, including one with 200 trucks. New medium-scale transport enterprises have likely been created, but we do not have enough data to characterize in detail the market landscape. Road transport. The largest operator likely remains to be the Road Transport, under the Ministry of Rail Transportation. Its fleet comprises 1,100 trucks, mainly of medium size (6.5–10.0 tons capacity), and 285 large buses (40-seaters). It has 3,000 staff. This makes it a large company in a country where road operators are small. Its fleet, however, only accounts for 2% of the nation’s heavy-duty truck fleet. Its truck fleet is not expanding (1,385 trucks in 1990), and most trucks are old.

13


Industry organization. These next paragraphs are an extract from the draft background reports for the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) 2013 Updating and Enhancement of the BIMSTEC Transport Infrastructure and Logistics Study. They are considered relevant and copied as is. There is no international transport industry in Myanmar because vehicles are not permitted to cross the border into neighboring countries. However, domestic transporters are engaged in movement of international cargo, albeit from the borders or ports, but this is very much based on a local supply/ demand basis. For example, transport from the borders at Myawaddy and Tachileik is predominantly undertaken by transport entities based there and contracted by border traders, rather than by transport coming from Yangon or Mandalay. In Myanmar the trucking industry is organized in so-called ‘gates’. ‘Gates’ exists in each major city and each ‘gate’ specializes on one trunk route, such as between Yangon and Mandalay. A ‘gate’ consists of a pool of operators with membership not usually being obligatory. The newer and larger operators generally do not participate in this ‘gate’ system. The ‘gate’ manager accepts bookings for loads, sets rates and allocates loads to members, as well as consolidating loads. The consolidated cargo is transshipped at a truck park adjacent to the office area, whereas full truckloads are collected directly at the shipper’s premises (e.g., factory) and driven direct to the consignee without passing through the ‘gate’ area. The ‘gates’ are suffering from decades of low and fluctuating freight rates, limited demand during part of the year, narrow operating margins, and poor investment. With the present income levels investment in more modern equipment is not considered realistically possible. There is a shortage of qualified drivers, especially for 22-wheelers—articulated transport—despite per-trip fees for drivers increasing. The wave of investment in new 22-wheelers (largely from outside the traditional industry), and the recent strict enforcement of truck-loaded weights (whilst both positive on the macro-level), have put further pressure on unit freight rates and on trip profitability. Improving the road network and increasing the average driving speed will effectively increase available truck capacity by reducing trip time and possibly exacerbate the ‘gates’ problems. The backbone of the long-distance vehicle fleet is the 12-wheel, high-sided, rigid truck operating at 27 or 8 tons gross weight, typically second-hand imported from Japan. The Japanese trucks are right hand drive, but are still preferred in Myanmar for their reliability, even at ages of 7 years–15 years. The 12-wheeler trucks are now being supplemented by 22-wheel[er] articulated trucks, largely flat trailers, running at 50 tons gross weight. There are few van-trucks because the higher tare weight is seen as a cost-disadvantage. Most of the new 22-wheeler trucks are made in the PRC and have been imported since the import-licensing was relaxed in 2011. There also exists a large secondary fleet of 6- and 10-wheel trucks running on local distribution, low-volume routes and where there are restricted-access roads. These vehicles are often old, in some cases dating back to the 1950s, and are no longer competitive on the main routes. Many of them are laid up for long periods of time outside harvest periods.

149,968

77,472

49,927

27,545

10,355

2,386

7,969

22,188

10,032

12,156

32,543

17,941

9,062

8,879

4,701

1,964

2,737

43,617

17,815

25,802

Cars

Yangon

Other areas

Truck (Light duty)

Yangon

Other areas

Truck (Heavy duty)

Yangon

Other areas

Total Trucks

Bus

Yangon

Other areas

Other Vehicles*

Yangon

Other areas

Motorcycles

Yangon

Other areas

48,125

37,696

85,821

5,393

1,218

6,611

8,295

7,344

15,639

42,828

13,160

10,039

23,199

9,433

10,196

19,629

42,082

107,886

FY1995

FY1990

153,047

21,442

174,489

2,565

4,835

7,400

7,825

9,041

16,866

53,892

21,551

8,112

29,663

10,384

13,845

24,229

72,048

101,396

173,444

FY2000

635,053

3,466

638,519

3,613

7,746

11,359

7,976

9,997

17,973

52,748

21,656

8,843

30,499

9,785

12,464

22,249

69,779

117,129

186,908

FY2004

638,467

3,310

641,777

3,613

7,694

11,307

8,156

9,882

18,038

54,801

22,335

9,102

31,437

9,734

13,630

23,364

71,781

122,159

193,940

FY2005

643,710

3,162

646,872

3,706

8,052

11,758

8,442

10,415

18,857

55,382

22,746

9,244

31,990

9,675

13,717

23,392

75,635

126,433

202,068

FY2006

655,984

3,013

658,997

3,857

9,151

13,008

8,617

10,674

19,291

57,211

23,457

9,703

33,160

10,108

13,943

24,051

82,930

134,088

217,018

FY2007

4,113

10,401

14,514

9,215

10,592

19,807

61,132

24,873

10,252

35,125

11,446

14,561

26,007

96,506

149,415

245,921

FY2009

4,399

11,463

15,862

9,556

11,388

20,944

64,888

25,557

11,263

36,820

12,240

15,828

28,068

105,788

159,854

265,642

FY2010

n/a

n/a

n/a

n/a

n/a

19,579

67,750

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

267,561

FY2011

1,570,007

42,416

1,702,544

46,539

1,833,298

50,660

n/a

n/a

1,612,423 1,749,083 1,883,958 1,955,505

4,033

9,900

13,933

8,903

10,780

19,683

58,857

24,304

9,624

33,928

10,917

14,012

24,929

90,358

142,869

233,227

FY2008

Table 7: Myanmar’s Vehicle Fleet, 1990–2014

3,723,666

161,236

3,884,902

39,017

23,952

62,969

9,306

13,493

22,799

138,244

35,447

17,820

53,267

26,980

57,997

84,977

115,621

279,630

395,251

FY2014

continued on next page

n/a

n/a

3,219,213

n/a

n/a

n/a

n/a

n/a

19,812

74,546

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

331,468

FY2012

Road Transport Services15

n/a

n/a

n/a

n/a

Other areas

Heavy Machine

Yangon

Other areas

87,312

Other Areas

128,454

174,379

302,833

n/a

n/a

n/a

n/a

n/a

n/a

1,966

–

1,966

FY1995

283,461

158,803

442,264

n/a

n/a

n/a

14,736

132

14,868

1,305

–

1,305

FY2000

801,757

162,512

964,269

n/a

n/a

n/a

52,563

2,867

55,430

1,332

–

1,332

FY2004

810,755

168,533

979,288

n/a

n/a

n/a

54,295

2,756

57,051

2,374

–

2,374

FY2005

823,218

173,538

996,756

n/a

n/a

n/a

55,352

2,515

57,867

3,952

–

3,952

FY2006

n/a

n/a

n/a

52,889

1,280

54,169

6,616

52

6,668

FY2008

n/a

n/a

n/a

47,035

1,036

48,071

8,828

48

8,876

FY2009

54

71

125

43,020

658

43,678

13,279

145

13,424

FY2010

n/a

n/a

n/a

n/a

n/a

53,352

n/a

n/a

n/a

FY2011

n/a

n/a

n/a

n/a

n/a

54,070

n/a

n/a

n/a

FY2012

850,027

182,815

242,844 1,768,027 1,904,560

230,933

2,047,191

261,330

n/a

n/a

n/a

n/a

1,032,842 1,998,960 2,147,404 2,308,521 2,363,747 3,699,109

n/a

n/a

n/a

59,431

2,243

61,674

5,643

–

5,643

FY2007

n/a = not available. * 2014 data includes special purpose vehicles and farm trucks. Source: ADB estimates based on data from the Road Transport Administration Department and Ministry of National Planning and Economic Development.

91,188

Yangon

178,500

n/a

Yangon

Total

2,224

n/a

Trawlergi

2

2,226

FY1990

Other areas

Yangon

Three Wheeler

Table 7 continued

4,004,406

555,920

4,560,326

783

377

1,160

n/a

n/a

n/a

53,586

1,415

55,001

FY2014



To better characterize the industry, we analyzed the results of the surveys carried out in 2013 in preparation of the National Transport Development Plan, and model prices and costs. Data includes information on 66 trucking companies, and on 5,500 roadside truck interviews. Rates. By international standards, freight rates in Myanmar are low on the Yangon–Mandalay corridor (but well higher than in India or Pakistan), within the international norm on other main corridors, and very high in mountainous areas as shown below: ƷɆ ƷɆ ƷɆ ƷɆ

33 cents per ton-kilometer (km) on the Yangon–Mandalay corridor 57 cents per ton-km on the Mandalay–Muse corridor Between 4.0 cents and 5.5 cents per ton-km on other roads in flat areas Between 10 cents and 14 cents per ton-km in mountainous areas

The largest articulated trucks offer 40%–50% cheaper rates than medium trucks. Most of this fleet of large trucks were imported after 2011. It is now responsible for 75%–80% of the transport task (by ton-km) on the main corridors. This reveals that freight transport rates on trunk corridors have likely fallen by 30%–40% in the last 3 years. Indeed, it was reported3 in 2010 that freight rates on Yangon–Mandalay were about $30 per ton while the 2013 surveys revealed that the larger trucks offered rates at $20–$22 per ton. Vehicle speed. Commercial speeds are low on all corridors, often at about 20 kilometers per hour (kph), and down to 6 kph–12 kph in mountainous areas. It takes an average of 29 hours for a truck to go from Yangon to Mandalay, 24 hours to proceed from Mandalay to Muse, and up to 69 hours to cross the 433 km separating Mandalay from Bhamo, on the road to Myitkina. Loading. Average loads have doubled on trunk and international corridors since 1991 (from about 10 tons to more than 18–24 tons per truck), but remains low in mountainous areas (9–11 tons).

Table 8: Freight Rates: Yangon–Mandalay, 710 kilometers (by the highway) Average Load

Share of Transport Task

Rate (¢/ton-km)

Toll Paid / Truck ($)

Toll (¢/ton-km)

Toll in % of Rate

Trip Length (h)

Commercial Speed (kph)

2-axle

9.8

11%

4.6

54

0.8

17%

29.2

24.3

3-axle

13.9

9%

4.4

76

0.8

18%

27.3

26.0

4-axle

18.0

47%

3.0

89

0.7

23%

29.4

24.1

Trailer

29.7

33%

2.8

144

0.7

23%

30.4

23.3

Average

18.2

n/a

3.3

91

0.7

22%

29.4

24.1

h = hour, km = kilometer, kph = kilometers per hour, n/a = not applicable. Source: ADB estimates based on data from the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

3

Japan International Freight Forwarders Association. 2012. ASEAN Logistics Survey, Volume 5. Myanmar.


Table 9: Freight Rates: Mandalay–Muse, 450 kilometers Average Load

Share of Transport Task

Rate (¢/ton-km)

Toll Paid / Truck ($)

Toll (¢/ton-km)

Toll in % of Rate

Trip Length (h)


2-axle

9.4

9%

9.9

52

1.2

14%

25.0

18.3

3-axle

16.0

19%

7.7

53

0.7

11%

25.6

17.9

4-axle

19.6

14%

6.8

63

0.7

11%

21.9

21.7

Trailer

28.8

59%

5.0

69

0.5

11%

24.1

19.8

Average

24.2

50%

5.7

29

0.6

12%

24.0

19.4

h = hour, km = kilometer, kph = kilometers per hour. Source: ADB estimates based on data from the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

Table 10: Freight Rates: Other Corridors Distance

Average Rate Toll Load (ton) (¢/ton-km) (¢/ton-km)

Toll in % of Rate

Trip Length (h)


Yangon–Myawaddy

450

13.9

5.2

1.8

36%

25.6

17.8

Yangon–Pyay

280

14.0

5.3

1.2

32%

15.1

18.6

Yangon–Pathein

195

9.0

4.3

1.4

25%

7.6

26.0

Yangon–Mawlamyine

305

17.0

3.4

1.4

43%

13.3

22.9

Yangon–Sittwe

890

11.2

4.8

0.9

21%

41.3

21.6

Mandalay–Bhamo

433

9.0

13.6

2.9

21%

69.5

6.2

Mandalay–Taunggyi

259

11.7

10.0

1.5

14%

27.9

9.3

Mandalay–Kale

362

9.3

5.4

1.8

32%

31.4

11.5

h = hour, km = kilometer, kph = kilometers per hour. Source: ADB estimates based on data from the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

The analysis of the survey data also shows the following: ƷɆ

ƷɆ ƷɆ

Vehicle utilization. Fleet utilization is low at 65,000 km annual average per truck on the Yangon-Mandalay corridor and 40,000 km in other areas. This is the same level as in 1991, and is closely linked to vehicle speeds. Utilization rates in hours per year per vehicle seem to be close to 2,000 hours, which is the norm in developing countries. Average truck mileage in India or Indonesia is 80,000 km/truck. Raising utilization would require increasing the average speeds on the roads. It would improve asset amortization and lower average costs. In the longer run, the improvement of loading facilities and night driving could much further raise utilization rates. A highly used truck in the United States can do 200 km–400,000 km a year. Fleet age. Most trucks are new, with an average reported age of 5 years, and very few trucks beyond 10 years. This shows the renewal of the fleet in the last years. Operational costs. There is a good fit between stated fuel consumption ($2,600/year) with highway development and management model (HDM-4) predictions fitted to Myanmar road conditions and vehicle costs and age, but maintenance costs ($2,600/year) are about half of what HDM-4 calculates. We use HDM-4 to analyze the impact of road roughness on vehicle operating costs after similar adjustments. Operating costs of the larger trucks are particularly sensitive to the condition of


Figure 16: Freight Rates (¢ per ton-km) 18 16 14

11.8

12 10 8 6 4

5.7 3.6

2

M

ya

nm

ar

:M

ou

nt Col ain om ou bi a s Iv are or a yC s Ce o M nt M ast ya ra ex lA nm sia M ico ar :I n al nt co aw er un i na I tio nd trie Pe na on s op l c es le o i 's Re Ba rrid a pu ng or bl lad s ic of esh M Ch ya U Et ina nm ni hi ar te op :Y d St ia an at go es nB M r a an Au zi da str l lay ali co a Ar rrid ge o nt r in In a Pa dia kis ta n

0


ƷɆ

ƷɆ

ƷɆ

road pavement. For instance, the fuel costs of an articulated truck are 60% higher on a bad road than on a good one. A medium-sized truck only experiences a 20% increase in fuel costs on a bad road. All surveyed truck operators reported using two crew members on board: a driver ($230/month), and an assistant ($100/month). This implies a crew cost per hour of about $2.70. Vehicle purchase price. Vehicle purchase prices are relatively low by international standards, especially for large trucks ($60,000 for a truck with trailer), which compensate for the low utilization. Loading. Average loading is 92% of capacity, and only 11.6% of trucks surveyed were empty, showing a very high loading efficiency. Only 6% of trucks were declared being overloaded, but there is likely underreporting. Tolls. Tolls are a major expense to operators, representing 12%–32% of revenues.

Truck cost model. We estimate trucking costs using HDM-4, calibrated to the type of vehicles, speeds and road condition on the Yangon–Mandalay corridor, and in other corridors. The average road roughness on the Yangon–Mandalay highway for a truck is 4.8, as surveyed in 2013 under a separate ADB technical assistance,4 and the roughness on other corridors is 7 on average. Trucks are not allowed on the Yangon–Mandalay expressway. Economic costs include depreciation and interests calculated using a 12% real interest rate. These exclude tolls, taxes on vehicles, and spare parts.

4

ADB. 2013. Myanmar: Technical Assistance for Preparing the Asset Management Program for Myanmar Roads. Manila.


Figure 17: Annual Truck Mileage (km) 350,000 300,000 250,000 200,000 150,000 100,000 50,000

Un

ite

dS

tat

e

Me s Ar xico gen t Pa ina k is tan Bra Au z i l st Ind ralia My o ne an sia ma r: Y Ind an g Ni ia ger Pe on-M C op le' anda olom ia sR ep lay co bia ub lic rrido of Ch r E ina Cz ech thio Re pia pu b Hu lic ng ar Ce Po y ntr al A Ivo land sia ry C n c oas ou t Ba ntrie s n My gla an de ma s r: O Ma h l a the w ra i rea s

0


Table 11: Truck Characteristics

2-axle truck (>2 tons)

Vehicle Purchase Price ($)

Fuel Consumption (l/km)

Average Load (ton)

15,000–30,000

0.27

8.3

3-axle truck

40,000

0.32

14.1

4-axle truck

50,000

0.43

17.3

Truck with trailer

60,000

0.52

29.2

km = kilometer, l = liters. Source: ADB estimates based on data from the Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

Table 12: Fleet Age Distribution (Surveyed transporters)

Share of trucks surveyed

$10 million review

Objectives

Approval Authority

Output

ƷɆ Inform and consult with other government agencies and agencies in charge of finance and planning ƷɆ Determine reference project cost and financial plan ƷɆ Determine area for land acquisition ƷɆ Obtain EIA approval ƷɆ Finalize project feasibility study

Minister, or cabinet decree and/or interministry investment committee approval (>$50 million) minister or regional minister (>$10 million) implementing agency DG ($50 million) or report Implementing ƷɆ Administrative agency DG approval and ($50 million

ƷɆ Assess project performance

Minister or regional minister

ƷɆ Post facto evaluation report

DG = directorate general, EIA = Environmental Impact Assessment. Notes: This is proposed for works financed by government. Approval levels will depend on the degree of decentralization. Such process needs to be accompanied by legal requirements such as: (i) projects not in the master plan need to undergo strategic review, (ii) projects cannot obtain next step approval before the previous stage is complete, (iii) projects cannot be budgeted without feasibility study approval, (iv) feasibility study and detail design needs to be budgeted, (v) works cannot be procured without detailed design and supervision. Source: Authors’ own.

Guiding Principles for Transport Policy35

The Ministry of Transport and Communications and the Ministry of Construction, maybe with the Ministry of Planning and Finance, could create a medium-term rolling investment program. Before a project could be proposed to Parliament for budget approval, it would have to be included in the program, and subject to a preliminary review by all concerned administrations at the technical—not political—level. This program could be prioritized according to economic benefits. Alternatively, the ministries could periodically define cut-off requirements in terms of minimum economic rate of return to match resources with needs. Finally, the ministries in charge of transport could define a common investment appraisal guidelines. PRINCIPLE 8: Consultations and participation of stakeholders in policymaking should be pursued.

Notes This principle is common to all liberal democracies. Generally, broad consultations and participation ensures better acceptance of policies and investments, a closer match between decisions and user needs, and more care for nuisances caused. It also empowers citizens. Transport presents specificities, presented below. Stakeholders. In the transport sector, these are: ƷɆ ƷɆ ƷɆ ƷɆ

users (motorists’ associations, public transport user associations, taxi associations, truck operator associations, etc.); communities affected (local governments, nongovernment organizations for special interests—e.g., the environment, the disabled—and persons affected); downstream businesses (industrial associations, chambers of commerce, the tourism industry, agricultural groups); and the transport industry (professional associations, industry associations, scientific or academic groups).

Levels of stakeholder involvement. Figure 2 gives examples of the various objectives and modalities of stakeholder engagement and impact.

Figure 2: Levels of Stakeholder Engagement INFORM

CONSULT

INVOLVE

COLLABORATE

EMPOWER

GOAL

To inform users and assist them in understanding problems

To obtain public feedback on analysis and alternatives

To work with the public to ensure public issues are considered

To partner with the public in all analysis and decision-making steps

To place decision-making power in the hands of the public

AGENCY COMMITMENT

We’ll keep you informed

We’ll keep you informed and listen to your feedback

We’ll ensure your concerns are reflected and tell you how

We’ll always seek your advice and recommendations

We’ll do what you decide

TOOLS

Reports Websites Open houses

Comment Call centers Surveys Public meetings

Workshops Deliberative meetings

User advisory groups Participatory decision-making

Road Boards Delegated decisions

Source: Adapted from International Association for Public Participation. www.iap2.org

36Myanmar Transport Sector Policy Note: How to Reform Transport Institutions

Current Status This is not the case. Some of the committees set under RTAD (TPD until 2015) have involved participation from industry representatives (construction, transport operators), but the committees importance has waned. External participation in the boards of SEEs used to be the norm, but the practice ended during the socialist period. Myanmar has drafted the Environmental Impact Assessment rules, which stipulate the need to solicit and consider the comments and suggestions of civil society organizations and affected people, but the rules apparently have not yet come into force (as of end 2014). Basic information on government action is often missing. Most agencies maintain websites, but information is partial and not regularly updated, with much variation between agencies.

Suggestions All transport agencies could publish annual reports, and maintain comprehensive websites to explain their action, their regulations, and their results. Large agencies could carry out user surveys to understand the expectations and perspectives of the public. Satisfaction rates could form part of performance indicators reported. The government could create a National Transport Council. This would be a consultative body, whose mission would be to review and advise on the government’s policy proposals, investment plans, and any other question proposed by the government. The council could also assist in organizing public consultations over these questions. It would be independent, composed mainly of transport stakeholders external from the government. This framework could be replicated at the regional and/or state level. The government could finally encourage the creation of associations of users and transporters, the role of whose would be to lobby the government to defend their interests in policy making.

3.6. Decentralization PRINCIPLE 9: Local needs should be managed by local governments.

Notes This principle is one of subsidiarity: matters that are of local interest are best managed by local people. Where it works, decentralization reduces the distance between decision-makers and people; it allows customtailored solutions to local problems and needs; and it enables participation by local residents, including ethnic minorities, in decision-making. Decentralization allows for experimentation, and for special arrangements in advanced or lagging areas. Finally, it relieves national decision-makers from routine tasks, so that they can concentrate on policy. Transport sector decentralization is complex for the following reasons:

Guiding Principles for Transport Policy37

ƷɆ

ƷɆ

ƷɆ ƷɆ

ƷɆ

National and/or local interests. There is no straightforward distinction between national and local interests, neither there is identification of spillovers between jurisdictions which would justify coordination. Efficiency is not ensured. Particularly, there are economies of scale in the management of road or rail networks (it may be better to manage them centrally), and there are always disparities in the capacity of local executives (raising the issue of equity if one fails to perform). Accountability of local executives to the local population is required. Influence or control. The central government usually needs to keep the capacity to control or influence local bodies in matters devolved, and its monitoring and compliance costs need to remain manageable. Resources. Authority requires resources, hence a need for either local fiscal capacity or for a fund transfer mechanism.

Current Status Decentralization is underway, but the situation is confused. There is no correspondence between areas of local interests, devolved powers, administrative capacity, and fiscal capacity. The 2008 Constitution has given regional and/or state governments limited powers over local road networks and ports. Since FY2014, these governments have large resources in the form of block grants from the central government. However, transport ministers generally have very few of their own staff, as the local offices of agencies are under the central government. City and township government committees manage urban transport networks, but rural roads are managed centrally. Commercial transport licensing is a national responsibility, under RTAD, but the decision is normally taken based on the approval of the region, state, or district officials. Licensing and vehicle inspection, while under the responsibility of the national government, is carried out locally with a strong regional, state, or district input.

Suggestions Areas where full decentralization could be already considered: ƷɆ

ƷɆ

Transport services. The central government should set the overall policy and regulatory framework, but authority can be devolved. For trucking and river freight, the government could impose a policy of complete liberalization and national validity of licenses (national registry). For passenger transport services, the concept of “authority organizing transport services” could be used. The national government could be in charge of transport services that cross region or state boundaries, the region or state governments of those that go beyond the city or township boundaries, the city or township development committees of those that are within their area of jurisdiction. Each authority could then either choose to liberalize (free establishment), regulate, or organize the delivery of services (e.g., defining the services and rates, establishing a public company or tendering licenses, subsidizing, etc.). Transfer of powers would require the transfer of RTAD offices to the regional governments but no additional resources. Vehicle fleet and traffic management. The definition of vehicle standards and registration should remain national, but implementation could very well be decentralized to regions (a transfer of RTAD offices). Indeed, registration, inspection of vehicles, and collection of vehicle-based taxes are routine tasks with little scale economies. Traffic management and safety are local issues; they also could be decentralized with corresponding staff. However, the central government should keep some form of control on traffic management on national highways. Cities may need powers to manage demand.


ƷɆ

They could be allowed to (i) set more stringent vehicle environmental standards, (ii) manage traffic in urban areas, including prohibiting the use of some vehicles, creating special taxes or fees, or capping the size of the vehicle fleet, and (iii) raise vehicle registration taxes above national levels. Ports, river ports, and airports of local interest. The constitution devolves ports and river ports of local interest to the local governments. However, MPA remains the owner and operator of all sea ports. Those that do not serve international traffic could be transferred. The ownership and management responsibility for local airports (by opposition to international airports) could be also transferred to regional or township governments (depending on the importance of the airport). DCA would keep the responsibility for regulation, safety, and navigation services.

Areas where decentralization is possible but requires coordination arrangements: ƷɆ

ƷɆ

ƷɆ

Road networks of local interest. All roads except national highways could, in principle, be managed locally: rural roads by township and village development committees, urban roads by township and city development committees, regional and/or state roads by regions and/or states. However, only the Department of Highways, DRD for rural roads, and city development committees for city roads have sufficient capacity to do so. Because the road network is not developed, scale economies are large. It should be considered that the ownership and ultimate responsibility for local roads could be transferred, but that the management needs to remain centralized until it is possible to develop local capacity. In this context, DRD and DOH would manage local networks on behalf of local governments.22 Full transfer may be possible in large word choice areas, such as in the Yangon or Mandalay regions. Railways of local interest. Railways form integrated systems with large-scale economies. MR has a few short railway lines separate from the main network. The practical responsibility for the upkeep and development of the entire network should remain with MR. Local governments could become involved in (i) their management (e.g., planning their development and maintenance, while financing deficits—and potentially deciding to close the line), and (ii) the organization of local passenger transport services, including financing of PSOs. Relationships between local governments and MR would be contractual. The government could also experiment with letting local governments run services themselves on lines with little national traffic (e.g., railbus). Local transport network plans. Regional and/or state governments could be responsible for preparing. To ensure consistency, there could be a legal requirement that the plans need to conform national guidance, and that their validity should be subject to national government approval. Should this not be compatible with a federal structure, the national government could seek to obtain the same results by making compliance with such guidelines a requirement before any payments or release of resources.

Areas where decentralization can only be considered in the long run. Region and/or state governments could ultimately manage national highways, ports, and airports. This is the case, for instance, in the United States and in the People’s Republic of China. Such devolution becomes possible once local capacity is sufficient to ensure that national interests will be protected. The central government then acts through norms, national programs, and fiscal incentives.

22

ADB. 2016. Myanmar Transport Sector Policy Note: Rural Roads and Access. Manila, and ADB. 2016. Myanmar Transport Sector Policy Note: Trunk Roads. Manila

4 Institutions to Lead the Transport Sector

Key Findings and Suggestions Central Government. To build capacity and improve efficiency of the organizations involved in the transport sector, the government could consider the following realignments. ƷɆ Planning: Establishing a permanent secretariat to the Joint Coordination Committee, as a precursor to a full-fledged Department of Policy and Planning, which could be assisted by a transport statistics and research body ƷɆ Regulation: Transforming the Road Transport Administration Department into a Land Transport Regulator, possibly to take the form of an independent authority that also covers railway regulation ƷɆ Highways: Establishing a Highway Department or Authority ƷɆ Railways: Creating a new Rail Department ƷɆ Water: Making Department of Marine Administration the entity in charge of all water sector policies, and either transforming Directorate of Water Resources and Improvement of Water Systems into a River Management Authority, or merging DWIR with Myanma Port Authority into a Port and River Transport Authority ƷɆ Aviation: Completing the separation of Department of Civil Aviation regulation and airport operation functions. These realignments would be most effective if the government created in the long-term a unitized ministry covering all transport matters. Local Level. At the local level, the government should refrain from decentralizing more resources until it can develop up coherent packages of responsibility and government administrations. It could assist local governments to build their planning and policy capacity. Road Transport Administration Department local offices are good candidates for such transfer, but the situation is more complex for Department of Highways and Department of Rural Development local offices, which may need to keep dual reporting lines. Region and/or state responsibilities need also be defined vis-a-vis township and city development committees. Financing Framework. It is possible to finance government investment plans amounting to 3%–4% of gross domestic product annually, under the following assumptions. ƷɆ Road user fees should be raised and earmarked. A new fuel tax, heavy vehicle license, and higher tolls could generate about $850 million each year. ƷɆ State-owned economic enterprise should become financially sustainable, and their deficits—particularly railways—should be eliminated. ƷɆ Private sector investments should be actively pursued, e.g., by improving road concession mechanisms. ƷɆ Once the sector is financially sustainable, debt should become a choice instrument, in the form of an infrastructure fund emitting long-term bonds; SEE or transport agency debt pledged on future revenues and/or taxes, or donor resources. Human Resources. The scale of (re-)training needed makes it useful to invest in existing or new training institutions. Senior managers and executives should be systematically involved in study tours and executive training. To prop-up change in SEEs, the government could hire qualified chief executives to mentor their Myanmarese counterparts.

39


Earlier parts of this report make the case for reforming the transport sector policy and legal framework. They propose changes to the governance of the SEEs, and a new distribution of responsibilities between national and local governments. They also make suggestions on the tools needed to manage the performance of SEEs and infrastructure agencies, and on planning processes. This section considers the institutional structures and people required to deliver these new policies and processes. It sketches possible institutional set-ups, but does not to give a blueprint for restructuring.

4.1 Union Government Units Union government transport institutions should be restructured to address the following issues: ƷɆ ƷɆ ƷɆ ƷɆ

confusion, gaps, and overlaps which finds root in a fragmented structure; conflicts of interests and limited development of policy and regulations, caused by the integration of policy, regulatory, and delivery functions; limited influence of the transport ministries over key policy areas, such as investment planning, tariff setting, and resource mobilization, which has led to a focus on delivery over policy; and the dearth of tools available to manage change (e.g., statistical information, performance and strategic plans, policy statements), and of people with appropriate incentives and skills.

Any restructuring also needs to factor in the upcoming changes in the ministries’ environments, either underway or advocated by this report: ƷɆ

ƷɆ

The corporatization of SEEs will reduce the scope of matters considered by each ministry, and require them to develop new forms of control (e.g., guidance through board, performance plans), and regulatory and/or policy capacity. The devolution of the central government’s responsibilities and administrations to subnational governments will shrink the ministries’ scope and require new influence channels.

Policy-Making and Planning Coordination Units In the short term, there is a need to coordinate the early implementation of the National Transport Development Plan, prepare a common policy statement, launch a systematic review of transport regulations to bring consistency and facilitate multimodal integration, and restructure and supervise transport SEEs along common principles. In the medium term, there is a need to maintain a rolling investment plan, prepare guidelines and pilot the proposed common investment review process, set up mechanisms to channel increasing resources for the entire sector, and develop the statistical bases for policymaking in the transport sector (e.g., monitoring of inputs, outputs, prices, costs, and efficiency of the transport system). In the long term, there is a need to routinely deliver these planning, policymaking, coordination, resource mobilization, and monitoring functions across the transport sector.

Institutions to Lead the Transport Sector41

Suggestions. The Joint Coordination Committee between MOC and MOTC is a first step to address short-term needs. It could be complemented by the creation of working groups in charge of policy and legal review, institutional restructuring, and statistical development. Each ministry could nominate a team of staff contributing to this process. A next step in the same direction would be a permanent secretariat to the Joint Coordination Committee. This secretariat could be attached initially to MOTC’s Minstry Office, whose permanent secretary could serve as the secretary. It would involve permanent staff detached from the three ministries, and new staff to fill functions where skills are limited (e.g., economic and financial appraisal, statistical management). International consultants could support this process, potentially with financing from financing agencies. To facilitate policy coordination, the secretariat could also facilitate working groups on crosscutting issue, e.g., road safety, intermodal transport, or logistics. Should the ministries be unitized, this secretariat could become a full-fledged Department of Policy and Planning. It would be the lead body advising the Minister of Transport and Communications, and in charge of strategic planning and coordination. A body in charge of transport statistics and policy research could be attached to this department.

Modal Departments and Delivery Units To function effectively, the government needs: ƷɆ

ƷɆ

modal departments. specialized administrations under the minister that advise on and execute government policy in a subsector of transport, such as aviation, roads, rail, sea, and river transport; and delivery units. autonomous, potentially self-financing operational entities which, under the guidance of a department, (i) will manage infrastructure networks or deliver services to users; and (ii) deliver in-house or contract with the private sector. They can be can be agencies, authorities, corporations, involving private or subnational government participation.

Road Sector. In the road sector, policymaking could be coupled with the management of the national highway network into a Department of Highways or Highway Authority, which would merge the current Department of Higways and the Department of Bridges. In the medium term, it could either take the status of an agency, which would have higher autonomy, finance mobilization capacity, and accountability than a traditional department. It would remain under the ministry but could also act on behalf of regional and/or state governments. In this case, the ministry would need to develop minimal policymaking capacity in the road sector to supervise the agency. Alternatively, the Department of Highways could become a purely national policymaking department, if regional and/or state governments assume all management tasks. Rail Sector. When MR becomes a true corporate entity, a new Railway Department should be created to take over policymaking, planning, and oversight of the company. The department’s roles would be to coordinate the implementation of new national railway policies and plans, represent the ministry at the corporation board, negotiate and supervise the performance contracts, monitor and evaluate the performance of the railway sector, establish national railway safety standards, and manage the development of the railway network infrastructure.


Water Transport. A policymaking body in charge of the development of river and sea transport is needed. Currently, the Department of Maritime Administration ensures the regulation and inspection of all vessels and crews but not services, the Transport Planning Department (until 2015) regulated river transport services, the Myanma Port Authority ensures the development of sea ports but not river ports, and Department of Water Resources and Improvement of River Systems manages inland waterways, but has no mandate to develop ports or services. Also, the delivery model needs to ensure that resources (currently in the ports) match needs (in the waterways). To fill the gaps within this framework, several options seem possible: ƷɆ

ƷɆ

ƷɆ

ƷɆ

The Department of Marine Administration could become the leading policymaking department in charge of developing all water-based transport. It would keep its regulatory and licensing functions (but these could also become a dependent maritime safety agency, or be delegated to local governments). The DMA would also develop a new policy and planning capacity, takeover licensing of services, and ensure the oversight of delivery units. DWIR could be turned into a River Management Authority, in charge of the management of Myanmar’s rivers, waterways, and river ports. To function effectively, this authority would require new financial resources, e.g., water taxes, riverbank development taxes, fuel taxes, and maybe a share of hydropower revenues. The MPA could continue to manage the comple relationships at the Yangon river port. Alternatively, DWIR and MPA could be merged into a Port and Waterways Authority. This authority would manage and develop water transport infrastructure on behalf of the government. The advantage would be that such an entity could be fully self-financing and could ensure some degree of cross-subsidization from sea transport into river transport (which is insufficiently funded). It also makes sense that the river approaches to Yangon port and the Yangon river and seaports be managed by the same entity. (This was actually the case until 1972). Either the River Management Authority or the Port and Waterways Authority would be SEEs under the supervision of DMA.

Aviation. The government has already made steps to separate policy, regulation, and airport operations and navigation services. DCA’s organization chart clearly separates “regulatory” and “service provider” functions. DCA still directly operates the Yangon International Airport and 30 domestic airports, but in 2014, it awarded 30-year concessions to private companies to build a new Yangon Hanthawaddy airport and operate the Mandalay airport.

Regulatory Units The responsibility for regulation is fragmented between RTAD (road vehicles), TPD (road and river services until 2015, then under RTAD), DMA (river and sea vessels), and DCA (aviation). There is no regulating body for the railways,23 and for infrastructure concessions (road, rail, and port). There are obvious synergies between road vehicles and service regulation, and advantages in having a single point of contact for business users. Going this way required a consolidation of RTAD and TPD (achieved in 2015), and either a transfer of river transport service regulations to DMA, or a transfer of river vessel regulatory authority to RTAD. The first solution seems more logical, as there are more synergies between river and sea transport than between road and river transport. 23

The need for a railway regulatory authority is identified in the ADB. 2016. Myanmar: Transport Sector Policy Note. Railways. Manila.


In some countries, the regulation of road, water-based, and rail services is under the same authority. This is meant to foster the development of intermodal transport, ensures application of similar technical and economic principles, and can be justified by scale economies—it may be simpler to have just one regulator rather than several ones when capacity is constrained. In Myanmar, there would be advantages in joining road and railway regulations, but less advantages to joining river. This is because railway regulation is a fully new area, while sea and road regulations are already well established. In many countries—particularly in federal ones (e.g., Australia, Brazil, Canada, and the United States)—the regulatory authority is an autonomous body with high standards of transparency and governance. This set up can be appropriate when: (i) regulatory skills and processes are specialized, (ii) where the private sector would develop better if it is safeguarded against excessive discretion by the government and unfair competition with SEEs, (iii) where government functions need to be separated to avoid conflicts of interests, (iv) where national regulations impact the interests of subnational governments, and (v) where regulatory objectives can be well defined. All these conditions seem to be met. Suggestions are thus to: ƷɆ ƷɆ ƷɆ ƷɆ

complete the merger of TPD and RTAD at the local level in a single window; transfer river services regulation authority to DMA; transform RTAD at the central government level into a land transport licensing and regulatory entity, possibly taking the form of an independent authority in the medium-term; and mandate the land transport regulator to focus on safety and the development of the private sector in areas requested by the government. Areas of regulation could be regulation and registration of road vehicles, registration and licensing of road transport services (active for national services, regulatory only for local ones), road and railway safety regulation, and management of public service obligations in the road and rail sectors. The authority could also serve as a regulator (or arbitrator) in transport infrastructure concession contracts.

4.2 Ministerial Structure Main Options In late 2015, the Asian Development Bank (ADB) technical assistance for Transport Sector Reform and Modernization presented three options for government consideration, which are presented below. Minimal Change to Ministry Structure (existing until April 2016). The following changes were to take place under this option: ƷɆ ƷɆ ƷɆ ƷɆ

The joint coordination committee would become a permanent structure with a secretariat under MOTC. MOC would create a highway department. MRT could transform RTAD into a land transport regulator and form a railway department. MOT could restructure the water sector under one of the options mentioned above. RTAD would transfer river transport licensing to MOT.

Merger of MOT and MRT. The following changes were to place under this option. ƷɆ

The two ministries would be merged as a Ministry of Transport, in a setting very similar to what existed before 1992. MOC would remain separate. Such setting is common in South Asia.


ƷɆ

Department of Policy and Planning could be formed, but it would need to keep coordinating with MOC.

Merger of MOT, MOC, and MRT. The following changes were to take place under this option. ƷɆ ƷɆ

A single Ministry of Transportation would coordinate all aspects of transport. Such setting is common in much of Southeast Asia, East Asia, Europe and Latin America. MOC’s housing department would likely not become part of the new ministry.

The choice of a unitized Ministry of Transportation presents advantages in terms of coordination, institutional standing, and resource mobilization. It is the preferred long-term solution. The benefits of a unitized ministry would be that: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

planning would naturally take place within the framework of the national transport master plan and policy statement; it would be much easier to develop common statistical base and standardized appraisal methodologies; the ministry could develop all aspects of logistics infrastructure and services, as well as other policies requiring close coordination between transport agencies; its size would give it a stronger voice for budgeting and financing of transport infrastructure; under this setting, it could be easier to earmark road user resources to road or other transport investments; and that the structure could be directly replicated at the regional level, ensuring a good coordination between national and subnational governments.

In April 2016, a new democratically elected government was sworn in. Its first action was to restructure the Ministries, including creating a Ministry of Transport and Communications, which took over the responsibilities of MOT, MRT, and the Ministry of Communications.

Other Central Government Entities An inspectorate general would be directly reporting to the ministers. It would fulfill traditional functions of inspection, investigation and possibly audit. Part of its staff could be composed of high-level civil servants who do not find positions in the restructured setting, but whose experience and skills make them valuable to keep in public service. With such composition, the inspectorate could also become an independent advisor to the minister, used on a case-by-case basis to prepare and facilitate policy changes and reforms. A legal branch would be tasked with legal drafting, counsel, and validation of contract and/or regulation. It could be either a separate, or part of an administration department. A common training institute could mutualize all the programs and institutions under each ministry of transport. Finally, the national transport council proposed in Section 2 could be a nongovernmental entity linked to the ministries.


Possible Long-term Structure of a Unitized Ministry of Transportation Figure 3 shows a potential structure for a unitized Ministry of Transportation, drawing from above considerations. The government could consider establishing such structure in the long-term. This structure does not include IWT, Myanma Airlines, Road Transport, and the possible United Engineering Construction Corporation.24 This is because in accordance with the principles developed in the previous section, their oversight should be fully transferred to the Ministry of Finance or any other ministry designated to supervise all public SEEs. Myanma Railways and the port and/or waterways authority remain in the organigram, but it is considered that their supervision should be shared between the Ministry of Transportation and the Ministry of Finance or SEEs.

Figure 3: Possible Long-term Structure of a Unitized Ministry of Transportation Ministry of Transportation

National Transport Council Land Transport Regulatory Authority

Transport Statistics and Policy Research

Inspectorate General

Department of Planning and Policy Coordination

Administration Department

Transport Training Institute

Department of Highways

Department of Railways

Department of Marine and River Transport

Department of Civil Aviation

Region/State Offices

Myanma Railways

Port and Waterways Authority

Airport Operators

Source: Authors.

24

The United Engineering Construction Corporation is the corporate form of Public Works’ construction units in the proposal shared by Public Works management in 2014.


4.3 Decentralized Institutions Regional Level As noted in other parts of this report and separate notes, it is necessary to: ƷɆ

ƷɆ

ƷɆ

ƷɆ

Broaden the scope of regional governments’ responsibilities. Regional governments could become organizing authorities for all regional public transport services (road, rail, and waterbased), with power to enter into public service contracts. They could receive responsibility for local airports. Their responsibility for road vehicles could be clarified to include registration, safety, traffic management, and law enforcement. Rationalize state and/or region government administration. The regional minister of transport should have authority over an agency. A minimum transport policy and planning capacity would need to be created. The local offices of RTAD could be transferred to the regions. For the Department of Highways, the most workable solution may be for the Department of Highways to designate its staff exclusively working on regional and/or state road networks, as part of a separate branch in each region, and place them under the authority of the regional minister of transport. Alternatively, the Department of Highways could enter into a formal agreement with the region and/ or state for the Department of Highways to manage the regional and/or state road network. A similar arrangement is considered for DRD over rural roads. Deal with legacy institutions. The legal overhaul proposed should be an opportunity to simplify the system of committees. However, this should not weaken coordination and consultations with stakeholders: safety committees could be kept, and new regional and/or state level transport councils could be created following the national model. Develop transparent resource allocation and fund transfer mechanisms between national and subnational governments. The Department of Highways could develop clear rules for: (i) allocating, and reporting on resources used for, national road maintenance and improvement between regions and/or states, and (ii) sharing national highway costs with local governments. Road user taxes collected locally could be clearly earmarked for local governments, while part of the proceeds of the new fuel tax (see below) could be earmarked for regional and/or state governments (as well as lower levels of government) to finance road or transport works.

Most of these transformations will require major legal changes, civil service restructuring, and for some, constitutional modifications. Such reforms have been discussed. It is important that transport considerations get reflected into final arrangements.

City and/or Metropolitan level Yangon and Mandalay cities already manage urban road networks. They, however, do not manage urban railways (which are under MR) and bus transport services (which are under the regional minister of transport). Yangon Urban Transport Authority. The Project for the Comprehensive Urban Transport Plan for the Greater Yangon proposed setting up a Yangon Urban Transport Authority. This permanent structure, placed under the authority of a board, but responding to the minister of the Yangon region, would be responsible for coordinating the development of transport plans, services, and traffic management measures, and would supervise the implementation of the transport master plan. Its functions would take effect in the Greater Yangon area, which


includes Yangon city and six peripheral towns. This type of structure is seen in many countries where economic (and traffic) boundaries do not match with administrative ones (e.g., Lagos, New York, Paris, Rio de Janeiro, Toronto). This idea is promising but needs further analysis before it can be implemented. The proposal considers that the authority’s only power would be to coordinate. This solution is meant to facilitate the authority’s insertion in the current structures since it does not take powers away from any department or ministry. To be effective, the authority may need more executive powers to organize services, prepare and/or endorse plans, and raise resources. It may be easier if it also takes over the management of common infrastructure. These enhanced powers would require clear accountability mechanisms. A workable alternative may be to grant the Yangon regional minister of transport the explicit power to organize and coordinate regional transport networks and services in the Yangon area, and approve plans prepared by lower levels of government. As mentioned before, the Yangon region could be a pilot area to pilot the transfer of the management responsibility of the national highway network from the national to the regional government. Responsibility for transport networks and services within Yangon City could be transferred to the Yangon City Development Committee.

4.4 Financing Framework The overall level of transport investment, as well as the allocation by mode and level of government are not related to identified needs (Figure 2 and Table 4). Transport investments should rise by at least a factor of 3%–4% of GDP, e.g., from $1.0–$1.5 billion to $3–$4 billion annually. This section reviews how to mobilize larger resources for the transport sector. The union government’s budget resources for transport will remain limited. Myanmar’s tax resources are small, and transport is not a priority sector In FY2014, region/state governments, for the first time, allocated large budgets for local road improvements, but they had few other areas of responsibility where they could spend national grants. This situation could quickly change when new responsibilities are devolved.

Resource Mobilization Instruments Accordingly, the government should aim to raise and leverage user resources, in the following areas. User fees and fares. Transport user fares have risen but they remain below costs in the railways (particularly for passengers). Road user charges are also well below the costs of maintenance and improvement of the network, and externalities. There is no mechanism for cost-recovery in the river transport sector.25 Such a situation may be fine for users in the short term, but it denies transport agencies the resources to deliver quality services and infrastructure. In the long run, a principle of full cost recovery is the best solution to finance transport infrastructure and services.

25

ADB. 2016. Myanmar Transport Sector Policy Note: How to Improve Road User Charges. Manila and ADB. 2016. Myanmar Transport Sector Policy Note: How to Reduce Road User Costs. Manila.


The following reforms are suggested: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

Create a fuel levy at an initial level of $0.10 per liter.26 This fee would make users contribute to road network maintenance and rehabilitation costs. Create a new heavy vehicle license fee to make heavy vehicles pay for the damage they cause to road pavements. Restructure the road tolling program to cancel tolls where they bring too little revenues and raise them where traffic is sufficient to finance improvement works. Keep the vehicle registration tax at a high level for cars, and consider allowing differentiated levels in congested cities. Raise rail passenger fares in line with costs, but only after programs of performance improvements have successfully reduced such costs.

It is estimated that road user charge reform could raise user revenues from $450 million annually to $850 million. To meet needs, resources need to be earmarked and leveraged. Earmarking. There is no use in raising user fees if all revenues are treated as common budget revenues. Resources should be earmarked and distributed to each level of government according to need. The benefits in terms of better spending, better accountability, and financial leverage easily exceed the potential fiscal disadvantages. SEE productivity and deficits. The government should raise productivity and make SEEs—particularly the railways—financially sustainable. The low productivity and cost recovery of some SEEs are consuming precious budget resources. This is particularly true in the case of the railways. Government subsidy to the railway system reached $133 million in FY2013 (counting operational deficits and investments), and could quickly top $200 million a year.27 Other SEEs have been experiencing deficits (e.g., Road Transport, IWT) but in smaller amounts. Private sector investments. PPPs can play a role in sector financing but typically not more than 10%–25% of sector investments, and then only with a robust investment framework.The government has already actively sought private investments in port, airport, and road infrastructure. The port and airport program has been relatively successful, but the road “build–operate–transfer” schemes have failed to mobilize large private resources.28 Other countries have made strong strides in this direction and can be used as a template. Brazil and India are good examples. The sector note on trunk roads proposes changes to the road concession mechanisms and supervision capacity to raise private investments in the road sector.29 Debt emission. Debt financing could be much expanded. A good example is the People’s Republic of China, which financed about two-thirds of its transport infrastructure through debt. ƷɆ ƷɆ

26 27 28 29

The Government of Myanmar could set up an infrastructure fund to issue long-term bonds to provide cheap and long-term financial resources to private transport investors and municipalities. Government transport operators could take on debt backed by their future tolls, user fares, port fees, or fuel tax revenues. Debt financing seems possible for road, ports and airport sectors; it

ADB. 2016. Myanmar Transport Sector Policy Note: How to Improve Road User Charges. Manila. ADB. 2016. Myanmar: Transport Sector Policy Note: Railways. Manila. ADB. 2016. Myanmar: Transport Sector Policy Note: Trunk Roads. Manila. Footnote 28.


ƷɆ

requires that the status of the operators allows debt emission. Until Myanmar Railways reduces its deficits, it is unlikely that it can self-finance investments or take on debt. The government could request international financing institutions to mobilize larger, nonconcessional resources to finance cost-recovery toll road, railway, or port projects.

Financial Scenarios To illustrate the potential of each type of resources are three financing scenarios. They show that each financing instrument should be actively mobilized to meet needs (Table 5). Scenario 1: Continuation of past trends. Government resources remain the largest source of sector financing, but follow historic trends, starting from about $600 million annually. Development partners and private sector resources increase in line with GDP, from their base of about $350 million and $100 million in 2014. SEE deficit increases steadily from $45 million to $100 million by 2020. Only 30% needs can be met. Scenario 2: Active mobilization of resources. Government resources rise to $1 billion annually by 2017, SEE deficit is eliminated by 2020, new road user resources are generated ($400 million additional), private sector resources are doubled, and development partners raise financing to $500 million each year. In this scenario, 75% to 80% of needs are met. Scenario 3: Optimal resource mobilization. Same assumptions as in scenario 2, but also with: further doubling of private sector investments (reaching $500 million annually by 2023), SEE to reach an operating ratio of 0.8. Debt is emitted, backed by earmarked resources and SEE profits, potentially reaching $400-$550 million annually. In this scenario, all needs are met.

Figure 4: Resource Mobilization Potential—Past Trends ($ million) 5,500 4,500 3,500 2,500 1,500 500 -500

2015

2020

2025

2030

Government budget

Private sector

Development partners

Other resources

SOE deficit or surplus

Total needs

SEE = state-owned economic enterprise. Source: Asian Development Bank estimates based on a model developed for the study.


Figure 5: Resource Mobilization Potential—Active Resource Mobilization Strategy ($ million) 5,500 4,500 3,500 2,500 1,500 500 -500

2015

2020

2025

2030

Government budget

Private sector


Other resources


Total needs

SEE = state-owned economic enterprise. Source: Asian Development Bank estimates based on model developed for the study.

Figure 6: Resource Mobilization Potential—Optimal Resource Mobilization Strategy ($ million) 5,500 4,500 3,500 2,500 1,500 500 -500

2015

2020

2025

2030


Government budget

Private sector


Other resources

Debt

Total needs SEE = state-owned economic enterprise. Source: Asian Development Bank estimates based on model developed for the study.


Table 5: Resource Mobilization Scenarios ($ million) Situation in 2020 Resources

Situation in 2025

Scenario 1

Scenario 2

Scenario 3

Scenario 1

Scenario 2

Scenario 3

Government budget

800

1,220

1220

1,130

1,720

1,720

SEE deficit / surplus

(120)

0

10

0

60

(170)

Private sector

150

290

350

210

400

570


350

500

700

350

500

900

0

590

590

0

780

780

New sector resources Additional debt

0

0

550

0

0

530

Total resources

1,180

2,600

3,420

1,520

3,400

4,560

Total needs Financing Coverage Share of GDP

3,500 34% 1.3%

74% 2.8%

4,540 98%

34%

3.7%

1.2%

75% 2.8%

100% 3.7%

GDP = gross domestic product, SEE = state-owned economic enterprise. Source: Asian Development Bank estimates based on model developed for the study.

Funds Transfer Mechanisms in the Road Sector A transfer mechanism for new sector resources will be required.30 Options available are: ƷɆ

ƷɆ ƷɆ

ƷɆ

Grant options. The central union government transfers to local governments can include unconditional grants (in which the use is not earmarked to the sector) or conditional grants (which are earmarked to the sector). They can be separated for recurrent budget (maintenance) and development (construction works). They can include performance-based elements (e.g., efficient use of spending). They can be project-based, in which case they may finance 100% of identified expenditures or match local funds at a given or negotiated share. The choice of the grant option will affect the degree of actual decentralization. Revenue options. Each level of government may be financed through separate taxes, or through the same taxes, using a revenue sharing mechanism. Formulas. There is a need to define the basis for the transfer (defined share of revenues, costreimbursement or needs estimates), and the basis upon which the pool will be divided (e.g., in function of the size of the road network, the condition of the roads, population, etc.) Type of Earmarking. User revenues may be linked to budgets, either informally (a practice of the Ministry of Finance), formally (a legal requirement, e.g., with a separate line in the budget) or directly (amounts collected go into a separate fund not managed by the Ministry of Finance).

In the road sector, the basic structure of a new financial framework integrating the reform of user charges mentioned above could potentially be as follows: Fuel tax resources could be collected centrally, initially earmarked for road maintenance and rehabilitation, and allocated to each level of government (union, regional and/or state, district, township) according to needs (e.g., road network length, type, condition). Allocations may be performance-based, with bonus given for good performance, and subject to monitoring and reporting (e.g., through annual reports).

30

Also discussed in ADB. 2015. Myanmar: Transport Sector Policy Note. Trunk Roads. Manila.


Heavy vehicle license fees could be collected locally (probably by RTAD). This revenue could be pooled with fuel taxes before redistribution according to the principles defined above. Vehicle registration taxes are mainly taxes on cars collected at the municipal and/or district level by RTAD. The local governments could keep a share of the proceeds, and a certain percentage could be channeled back to the state and/or regional and central governments to finance road investment works. Funding Responsibility. Costs can be shared between levels of government. For instance, the Government of Japan funds 75% of the costs of national expressways, 66% of national roads, and 50% or less of local roads.31 In the United States, the federal government is responsible for 80% of the financing of the national roads, but does not take responsibility in maintenance financing. (It only transfers resources from the fuel tax to local governments). Most countries seem to rely on predefined cost-sharing ratios, rather than leave it to negotiate on a case-by-case basis. This is likely the way Myanmar should go. A starting point may be (i) to allocate responsibility for funding maintenance of national networks with the central government, and that of local networks with local governments, and (ii) for the central and local governments to share the responsibility for financing improvement works, with the cost-sharing ratio adjusted in relation to the national importance of the road, and according to the states’ poverty level.

4.5 Human Resources The rest of the decade will be one of profound change for Myanmar’s transport ministries and SEEs. There is a serious shortage of skilled planners, engineers, administrators, and managers. This shortage can lead to flawed policies, incorrect investments, inefficient operations, failure of corporatized companies to meet business opportunities and, among others, corruption in procurement. There is also a need to break silos, entrenched mentalities, and corporate cultures that would slow down the process of change.

Civil Servants Hundreds of managers and specialists need to be retrained. Given this large demand for training, a number of options can be considered: ƷɆ

ƷɆ

ƷɆ

31

Senior management staff, officials, and SEE managers could participate in overseas study tours and short executive trainings. At this stage of Myanmar’s opening, study tours would be excellent investments. Taking staff who have not experienced how business functions outside Myanmar to other regional countries to meet with people involved in similar businesses is a good way to open minds and eyes to new possibilities. Staff could be enrolled into refresher trainings in universities. The curricula of these universities would likely need to be improved, potentially with the support of well-known international universities in the transport sector. A specialized transport management academy could be created to train middle management. This would not duplicate the existing training centers of each ministry, which have focused on technicians and office workers.

ADB. 2012. Financing Road Construction and Maintenance after the Fuel Tax Reform. Manila


ƷɆ

Training centers could invite qualified trainers, and translate and/or adapt existing training materials available in English language.

For the past 25 years, the selection of senior government officials had been based on their connection to the military establishment. While this helped to create a common government ethos, it was often not the best approach to providing high quality transportation to the users. In the new economy, all senior officials of all economic ministries and agencies should be selected on merit. It will be important to recruit younger professionals that have a modern understanding of management and education that fosters accountability and independent decision-making, and facilitates their accession to decision-making positions. In the transition to a unified ministry, it will also be important to unify career streams and actively encourage the transfer of staff between former ministries.

State-Owned Economic Enterprise Managers Both the selection and training of the chief executive is critical to the long-term health of the organization. Some private sector institutions in Myanmar have gone overseas to find the kind of expatriate Myanmarese professional who can bring the international business style back to Myanmar. But there are few of those professionals. Training the new chief executive is a viable option, typically for managers who have not yet reached 50 years old. One of the best models for training a chief executive is on-the-job training. Institutions around the world that are transiting to a fully corporatized structure use a mentoring approach to on-the-job training. In that model, the organization transitioning to a corporatized model hires a newly retired or otherwise available, ex-chief executive from a reputable international company for a 2-year period. That “trainer” will come with experience and an understanding of the systems and processes needed to survive and prosper in a competitive marketplace. The two co-chief executives—the trainer and the trainee, sit in the same room and possibly at the same desk. The decisions, discussion of options, debates, and meetings are held with both in the room. Over time, the new chief executive begins to exercise more and more control so that by the end of the 2-year transition, the new executive is fully trained and confident about managing the company. This model is recommended for the corporatizing transport state enterprises in Myanmar.

5 Restructuring Transport State-Owned Economic Enterprises

Key Findings and Suggestions The government’s priority should be to build corporate governance and to develop sound businesses rather than to push for early privatization and to cut financial lifelines. Transport state-owned economic enterprise need a new governance structure, new management, and new financial systems, while learning to serve customers. However, no SEE is profitable, and some do not have sound businesses, viable assets, or managerial cultures yet. A 5-year transition period to a new model should be considered (may be up to 10 years for railways), with gradually declining government involvement and support, and which may be up to 10 years for railways. Clean balance sheet. The Ministry of Transport and Communications, and the Ministry of Construction could jointly negotiate common terms with the Ministry of Planning and Finance regarding SEE financial performance targets, treatment of excess staff and pension obligations, inherited debts, surplus assets, treatment of land, public service obligations, and timetables for restructuring. The rule of thumb should be that old liabilities should be borne by the government rather than saddled on the new company, and that excess assets should be sold. The corporatization process itself could be completed within 1–3 years, with support from external advisers, under the supervision of a common corporatization team and the SEE establishment board. Options for key SEEs are as follows: ƷɆ Construction Units of the Ministry of Construction: Form three or more medium-size companies, invite strategic investors, privatize entities once contractual models and financial systems are in place. ƷɆ Myanma Railways: Corporatize in two entities (separate freight operations from passenger operations and infrastructure management), identify PSO needs for urban and nonviable rail lines, prepare a business and rationalization plan, as well as a performance contract. ƷɆ Inland Water Transport: 5-year transition to a new business model centered around cargo and ferry operations, discuss PSO for ferries and services to remote communities, sell assets to invest in modern equipment and possibly loading facilities. ƷɆ Road Transport: Search joint ventures opportunities for viable parts of the business, but close operations and/or sell nonviable parts. ƷɆ Myanma Port Authority: Privatize terminal operations to concentrate on port management function.

54

Restructuring Transport State-Owned Economic Enterprises55

5.1 Corporatization Principles Principles of Separation Real Corporate Status. To be effective, transport SEEs should be restructured to have: ƷɆ

ƷɆ

ƷɆ

ƷɆ ƷɆ

ƷɆ

ƷɆ

An Independent Board of Directors, which is the top level of management. This is different from the current practice in autonomous SEEs of relying on internal management team boards. The board should have responsibility over the company. Managers should report to the board, not to the ministers. Directors should be selected for their expertise and should be responsible for the corporation governance and the direction of corporate development. A Chief Executive Officer (CEO) who reports to and is responsible to the board for the overall performance of the company. His or her selection is critical. The CEO should be selected on the basis of merit. Managing a government department is usually not the same as managing a corporation. Often, it may be advantageous to bring in an outside CEO. Accountability for Performance. Management and staff must be held accountable for achieving targets. The final metric is the successful achievement of targets for business growth, revenue, and profitability. Effective accounting and auditing. The financial accounts are where the company’s performance can be measured. External audits ensure accuracy and integrity. A clear focus on customers. The job of the corporation is not to run trains or buses or river vessels, it is to serve customers. The corporation must align its corporate structure and business processes on this objective. Freedom to set prices to service markets. This means both upward flexibility and downward flexibility. The need to constantly improve productivity to match the other competitors in the marketplace will control prices. Where customer revenues cannot cover operating costs, either the market should be abandoned or, if the government deems that market to be essential, then a public service operation subsidy should be paid. Freedom to decide to make, buy, or sell. All functions need to be subjected to a rational and impartial assessment of whether it is essential to keep in-house or contract to a supplier. Equipment may be expensive and difficult to maintain. It may require special expertise to operate efficiently. Many corporations have decided to such as data processing or accounts management are services that can be contracted out. Equipment supply and maintenance can be contracted. Infrastructure maintenance can be contracted. A similar review is required for assets: Are they necessary? Should they be kept, improved, or sold?

Government Control Mechanisms. As explained in Section 2, the government’s control over the companies should take three forms: ƷɆ

As the owner of the company, the government is represented on its board. It is suggested that the Ministry of Finance should be the sole supervisor of SEEs acting in a commercial environment (construction units of MOC, IWT, MA, and RT), while the oversight of delivery units of the government (airports, MPA, and MR) could become a shared responsibility between the proposed new ministry of transport and the ministry of finance. As the owner, the government should require the companies to prepare corporate business plans.


ƷɆ

ƷɆ

Delivery units that remain under the new ministry of transport should prepare performance contracts. These contracts would ensure an arms-length relationship between the government and the corporation. Among others, they define the public service obligations of the corporation. The corporations should be subject to regulation as all private businesses in the sector.

Corporatization Suitability Not all SEEs have the same rationale to remain under public ownership, nor are they all able to generate funding from users sufficient to allow independent operation. Government ownership rationale. The question is “Does state ownership of this business deliver any social benefits that cannot be delivered in another, better way?” If the answer is yes, the company should be corporatized but remain in the public sector. If the answer is no, its privatization should be considered when possible. The rationale for government delivery of transport services is generally weak. It is stronger for transport infrastructure managers, as their privatization can require an advanced public–partnership framework. Readiness. To be ready for corporatization, an SEE needs to meet the following criteria: ƷɆ ƷɆ ƷɆ

most of its income comes from customers; it is profitable or nearly profitable; and it is able to meet a certain level of satisfaction of customer’s needs.

Privatization can be further considered if the company also: ƷɆ ƷɆ ƷɆ

has a track record of producing timely and accurate financial reports; competes in a market place; and has low level of protection from competition.

Table 8 examines the various agencies involved in the transport sector for their suitability for corporatization. Starting from the top right quadrant of the Table are those enterprises for which there is an unclear public sector rationale and which are also likely financially sustainable. This includes at the outset, Myanma Airways and the construction units of MOC. These should be fully corporatized, and considered for privatization. At the other end of the scale, in the bottom left quadrant, are those enterprises where there is some public sector rationale and which are unlikely to be financially sustainable. These are DWIR and Myanma Railways. Myanma Port Authority is a special case as its business (port management) is viable but until 2011, had been running systematic deficits. In the top left hand quadrant are those enterprises that have a clear public sector rationale and are likely to be financially sustainable. This includes some airports. In those cases, other countries have often pushed the enterprises to become financially self-sustaining, but leave the ownership in public hands.

Table 6: Corporatization Suitability Some public ownership rationale

Unclear public ownership rationale

Likely financially sustainable

Airports

Myanmar National Airlines MOC’s Construction Units

Not financially sustainable

Myanma Port Authority Myanma Railways DWIR

Road Transport Inland Water Transport

DWIR = Directorate of Water Resources and Improvement of Water Systems, MOC = Ministry of Construction. Source: Author.


The final group refer in terms of quadrants for consistency comprises enterprises that have little public sector rationale and are not financially viable. In practical terms, only two options are viable. One is to find a way to merge or otherwise change the business environment to make them more financially viable. The alternative is to sell them for the value of assets and allow the private sector to serve the market. Road Transport and IWT fall into that category.

Change Management The government has followed a decentralized approach, whereby all ministries prepare the corporatization of the companies at their own pace, subject to varying pressure from the Ministry of Finance to cut deficits and subsidies. This has led the most dynamic companies (e.g., Myanma Airways) to stride ahead, while others were unsure of their fate. The conditions for corporatization—particularly the treatment of land assets, pension liabilities, public sector obligations, and inherited debt and staff—have been left open to negotiation on a case-by-case basis. A common framework for corporatization would be a surer way to success. The ministries in charge of transport could take the initiative to negotiate with the Ministry of Planning and Finance a common strategy, including financial terms. A next step would be to set up a corporatization team to help all SEEs prepare business plans and, when needed, restructuring plans, set up commercial accounts, and other steps toward their corporatization.

5.2 Common Corporatization Terms Profitability Targets As a rule of thumb, corporatized transport units need to generate an operating ratio of about 80%. That means that the direct costs of operations equal about 80% of revenue, leaving 20% for working capital, administration, and investment. None of the SEEs achieve that level of financial viability at the moment, Myanma Airways being the closest as of FY2013 (after reaching it for the previous 3 years), and Myanma Railways the furthest. The cumulated deficit or surplus of the five transport SEEs selected in Table reached $45.6 million in FY2013, most of which coming from Myanma Railways.

Inherited Debt Most of the SEEs carry some component of long-term debt. Myanma Railways’ long-term debt was reported to be only 2.7% of its assets in FY2012, but by FY2013 interest charges represented 16% of revenues and 27% of revenues. Road Transport does not have long-term liabilities. In 2009, Myanma Airways took on a concessional loan for the purchase of three aircrafts, which it will start to service in 2015, and is still servicing a small Canadian International Development Agency loan from 1976. Inland Water Transport’s books still include a historic World Bank loan and an Overseas Economic Cooperation Fund loan with a residual value of $25 million. These loans were long kept in arrears as were all loans to international financial institutions. This issue is handled directly by the Ministry of Finance.


Table 7: Revenues, Operational Expenditures and Operating Ratios of Selected SEEs (Revenues and expenditures in MK billion) FY2010 Myanma Railways Road Transport

FY2011

Exp.

OR

Rev.

Exp.

OR

Rev.

Exp.

OR

Rev.

Exp.

OR

33.1

59.3

1.79

50.1

71.5

1.43

61.7

84.3

1.37

62.2

105.2

1.69

8.3

7.5

9.0

1.20

15.9

0.85


7.3

12.4

1.70

Myanma Port Authority

3.8

6.6

1.74

Aggregate deficit

FY2013

Rev.

18.7

Myanma Airways

FY2012

11.0

32.8

8.7

1.05

8.2

9.3

1.13

7.6

10.1

1.33

18.1

0.80

41.6

33.2

0.80

39.5

37.6

0.95

11.7

1.06

11.0

12.9

1.17

10.1

12.1

1.20

17.9

17.2

45.6

Rev. = revenues, Exp. = operational expenditures, OR = operating ratio (expenditures over revenues). Note: FY2010 data available for Myanma Port Authority Source: Asian Development Bank estimates based on data from Myanma Railways, Road Transport, Myanma Airways, Inland Water Transport, and Ministry of National Planning and Economic Development.

As a rule of thumb, the government should take over historic debts not related to productive assets. This review suggests that this is mainly an issue for Myanma Railways.

Staff and Pension Obligations SEEs restructuring to focus on their core viable business face the issue of staff retrenchment costs and pension liabilities. All SEEs have reduced their staff, up to the point that some have more pensioners than staff. MPA staff was reduced from 11,000 to 3,200 between 2011 and 2014. IWT has 3,400 staff and 4,500 pensioners. MR reduced its staff from 23,000 in 2011 to 20,000 in 2014. In FY2013, pensions represented: ƷɆ ƷɆ ƷɆ ƷɆ

1% of MA’s revenues ($0.4 million) 8.5% of MR’s revenues ($5 million) 13% of IWT’s revenues ($1.3 million) 20% of RT’s revenues ($2 million)

Excessive pension costs and staff retrenchment costs should be taken over by the union government. Pension costs account more than half of the deficit of IWT and Road Transport, and could push the companies quickly to bankruptcy. However, the pensionable staff of the SEEs remain public servants under the Government of Myanmar public service staff rules. Regardless, these liabilities would remain with the government. Two approaches can be used. One option is to establish a provident fund, to manage the pension costs over time and to fund staff retrenchment. This approach is attractive to the pensioners because it is actuarially sound and the monies are managed by an independent professional pension fund. Pension obligations of current and future staff can be dealt with through the provident fund. Historical pensions need to be capitalized, but to adequately capitalize the provident fund usually requires a fresh infusion of government capital (potentially financed by a loan from an international financing institution) or alternatively, sale or conversion of land assets owned or allocated to the SEE to raise funds to provide capital for the provident fund. Loans from international financial institutions in some countries can be used. Both those funding methods should be considered for the corporatized transport service delivery units.


The second option is simply for the government to transfer the pensioners from the responsibility of the SEE to the government as part of the overall government pension obligation.

Infrastructure and Equipment Assets Corporatized SEEs should only bear the cost of infrastructure that they use as part of their corporate activity. This is most relevant for Myanma Railways, since more than half of the network experiences little traffic, making it unlikely to generate more revenues to cover the costs to maintain it. Myanma Railways should assess the costs of keeping the lines open and run the services desired by the government. After a public review of whether or not to keep open each line, the deficit should be covered under a public service obligation. Corporatized SEEs should also be free to sell or scrap their excess equipment. This is particularly relevant for IWT’s vessels, Myanma Railways rolling stock, and Road Transport trucks. The corporations should estimate requirements based on traffic forecasts, and sell or scrap the excess fleet.

Land Most transport entities have accumulated considerable land over many years. This land is often carried on the balance sheet at a (minimal) historical book value that bears little relationship with the current market value of that land. The attachment of land to the corporate entity is one way of addressing the need to have a strong balance sheet. But to achieve that result, the land should be valued at current market rates. This will dramatically increase the land value component of the balance sheet, but will carry with it a large tax obligation. However, the valuation process can be lengthy and controversial, delaying corporatization. An alternative approach is to transfer all land other than core land (to be used by the corporatized unit) into a union government’s independent land management company charged with maximizing the return to the government from land assets. The corporation can receive in exchange either nothing (the book value), or a notional amount negotiated with the government. The land can also be used as capital for the provident fund discussed above. As corporations expand and need more land, they can lease it for a market-base fee from the land management company. But the cost of land—as rent on the land—enters the income statement of the operating company and because that cost impacts the profitability of the company, there will be a conscious effort to keep that cost to a minimum.

Public Service Obligations It is inevitable that some services delivered by SEEs will not be commercially viable and as a result, some level of public service obligation will be needed. This will particularly be important for IWT (ferries), Myanmar National Airlines (links to remote airports), Myanma Railways (secondary lines), and Road Transport (government staff transport).


During a transition period, there are advantages to awarding the public service obligation directly to the SEE, but in the longer-term, substitutes should be considered. From the SEE viewpoint, public service obligations are a good source of revenues, but they limit autonomy and business growth perspectives since they depend on the government. From the viewpoint of the Ministry of Finance, directly awarded public service obligations can appear as subsidies to unproductive entities. At the minimum, the government should establish the actual costs of the public service obligation (from an examination of the SEE accounts, requiring some analytical accounting capacity). These costs should be borne by the government entity most benefiting from it. The cost of running secondary railway lines can seem unimportant for the central government, which is unlikely to carefully consider their usefulness. Region and/ or state governments and city governments (for the Yangon Circular Railway) would be in a better position to make informed judgments if they can decide upon the services and pay for them. The contracting public government should be able to exert pressure to raise productivity through periodic renegotiation of the contract. As soon as possible, public service obligations should be tendered out for the minimal subsidy. The services can be contracted to a monopoly operator over a longer period in exchange for a subsidy, the level of which can either be expressed as a minimum payment per user, or a fixed payment covering deficits.

5.3 Corporatization Process Table 8 sets out the key steps and role of government and the company during the corporatization process. The steps requiring the most inputs, and potentially external support, are: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

the appointment of the board and recruitment of the CEO; the valuation of assets; the definition of a viable business plan and negotiations of financial targets; the management of human resources issues; and the introduction of business management systems.

The process can take 1–3 years. The cost of international advisors can range from $1–$2 million for a small SEE, up to 10 times this amount if advisors are requested to carry out all these tasks for a company as large and complex as MR.


Table 8: Corporatization Process Government Task

Corporation Tasks

Preparation Prepare policy statement to corporatize the corporation

Prepare registry of assets

Establish a corporatization unit

Initiate preparation for installation of commercial accounting

Draft corporatization law

Identify excess assets and deficit making services

Review laws and regulations restricting competition with the corporation

Identify regulatory constraints bearing on the corporation

Prepare company registration documentation

Obtain company registration documents

Appoint establishment board: ƷɆ Establish qualifications ƷɆ Seek nominations for external directors ƷɆ Advertise and/or identify potential CEO ƷɆ Appoint board directors

Directors to appoint CEO CEO to appoint and/or confirm senior managers

Development of Restructuring and/or Business Plan and Performance Contract Identify corporation core business, revenues, and suppliers

Research business demand and profit sources

Identify areas where the corporation is a monopoly and decide upon regulatory regime

Review impact of residual constraints and possible substitutes

Value SEE assets

Identify required assets to run the business and treatment of excess assets

Decide how much debt the corporation can carry

Identify manageable debt burden

Decide treatment of staff retrenchment and pension liabilities

Consult staff Prepare arrangements for severance, redeployment, training, and change in status of benefits (housing, health, education)

Decide treatment of land Decide what government guarantee that will be offered for each corporation debt

Identify minimal government guarantee required

Decide targets for cost minimization, service levels, productivity targets, rate of return, dividend, and other financial policies

Negotiate with Ministry of Finance realistic targets, based on financial model

Decide what infrastructure and services should be covered under public service obligations, and review costs and performance Decide upon future public support for investments

Prepare investment and financing plan

Government to define position of government directors at the board regarding business plan and to sign performance contracts

Board to approve business plan Board to allow CEO to sign performance contract

Setting Up Administrative Services Identify management systems needed for new business: commercial accounting, human resources, information technology Appoint a unit to take care of residual claims

Identify legacy rights and obligations: contracts, civil or criminal legal liabilities, statutes, and regulations Table continued


Table 8 continued Government Task

Corporation Tasks

Set up a scheme to fund government obligations regarding Appoint people to manage staff transition staff retrenchment and pension issues, treatment of land agree with corporation on purchase price

Prepare for taxation and accrual accounting Complete business valuation process Define accounting policies

Award licenses and public service obligations Take charge New board to replace establishment board and take control

Public relations campaign to present company

Source: Authors.

Privatization Options Corporatization for some companies is a first step toward privatization. There are various methods: ƷɆ ƷɆ

ƷɆ ƷɆ

ƷɆ

ƷɆ

The government can do a clean sale, whereby 100% of the company is sold to a single buyer. This is the easiest method. The government can also keep a majority or minority share, or a golden share. Partial sale requires managing the interests of government and minority shareholders, and is again more complex, as each condition reduces the value of the company to the private investor. The government can sell shares at an initial public offering. The government can offer staff buyouts, during which management and staff could buy the shares from the government. This is common where staff believe that changing the owner will make it easier to raise capital and turn an underperforming business around. As insiders, they are in a good position to make this judgment. The risk is that they lack access to capital and skills. The government could pay someone to take over a losing business with the hope that the new management could turn it around, and stop public losses. The risk is that the investor simply runs down the company and liquidates it. In some cases, only the viable part of the company is salvageable. The rest is liquidated or sold by parts.

The government has emphasized joint ventures as a preferred way to develop SEEs. Two types of joint ventures can be considered. Conventional joint ventures involve establishing a new firm with the contribution of both partners to develop new markets. Another option is that the SEE transfers all its (viable) operations to the joint venture. The SEE continues as a legal entity. This second solution is close to a partial sale of the company subject to the limits mentioned previously.


5.4 Implications for Transport State-Owned Economic Enterprises The situation and restructuring options of the following transport SEEs is analyzed in detail: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

The construction units of the Ministry of Construction are discussed in the ADB 2016 publication Myanmar Transport Sector Policy Note: Trunk Roads. The case of Myanma Railways is discussed in the ADB 2016 publication Myanmar Transport Sector Policy Note: Railways. The case of Inland Water Transport’s case is reviewed in Appendix 1 to this note. The case of Road Transport is reviewed in Appendix 2 to this note. The situation of Myanma Port Authority is discussed in Appendix 3, but development and restructuring options are just preliminary because of a lack of recent data.

APPENDIXES APPENDIX 1


1.

Assessment and Perspectives

Status and Nature of Market Inland Water Transport (IWT) is an state-owned economic enterprise (SEE) under the Ministry of Transport. The mandate and responsibitlity of IWT is being updated in a draft IWT corporatization law. For the past 50 years, IWT has functioned under the requirements of the Road and Inland Water Transport Law of 1963. The mandate and role of IWT is: ƷɆ ƷɆ

to transport passengers and freight along the navigable waterways of Ayeyarwaddy River, the Chindwin River and also in the Delta areas, Kayin States, Mon, and Rakhine, and to operate ferry services for the convenience of passengers and vehicles.

There is no clear rationale for keeping public ownership of IWT. Such services are equally delivered by the private sector, which comprises many smaller, more competitive operators. According to the framework defined in section 5, IWT should be considered for quick corporatization and privatization after a transition period.

Figure A1.1: Inland Water Transport Passenger Traffic 30,000

1,000,000

Million passengers

800,000 700,000

20,000

600,000 15,000

500,000 400,000

10,000

300,000 200,000

5,000

Million passenger-miles

900,000 25,000

100,000 0

FY 19 9 FY 0 19 9 FY 5 20 0 FY 0 20 0 FY 4 20 0 FY 5 20 0 FY 6 20 0 FY 7 20 0 FY 8 20 0 FY 9 20 1 FY 0 20 FY 11 20 1 FY 2 20 13

0

Passengers

Ferries

Non-river crossing

Passenger-miles

Source: Asian Development Bank estimates based on Ministry of National Planning and Economic Development, and Inland Water Transport. 2014. Annual Traffic and Financial Accounts. Yangon.

64

Inland Water Transport65

Figure A1.2: Inland Water Transport Freight Traffic 6,000

800,000

Million tons

600,000 4,000

500,000 400,000

3,000

300,000

2,000

200,000 1,000

thousand ton-miles

700,000

5,000

100,000

13 20

12

FY

11

20 FY

20

10

FY

20

09

FY

20

FY

20

08

07

Freight ton

FY

20

06

FY

20

05 FY

20

04

FY

20

00

FY

20 FY

19

FY

19 FY

95

0

90

-

Freight ton-miles

Source: Asian Development Bank estimates based on Ministry of National Planning and Economic Development, and Inland Water Transport. 2014. Annual Traffic and Financial Accounts. Yangon.

Figure A1.3: Inland Water Transport Costs and Revenues as of 2013 (MK billion) 14 12 Break-even Line 10 8 Sustainability Line 6 4 2 0 Costs Fuel Vessel Salaries Pension Other

Revenues Freight Passenger Towage, hire, and demurrage Miscellaneous

Source: Inland Water Transport annual traffic and financial accounts; Asian Development Bank estimates.

66Appendix 1

Issues IWT has 3,400 staff, against a sanctioned staff level of 10,900. The sanctioned staff levels are not likely to be achieved as traffic has fallen sharply over the past few years. Operating ratio is about 120% With reduced liability for pensions and debt, it could be close to 100%, still above benchmark of 80%. However, significant changes are needed to become a stable operator. The lack of profitability and the challenge of recovering market share will keep staff levels at the current level, or may be even lower in the future. Staff are government employees and as such are entitled to government pension guarantees. Key indicators of performance are shown below.

Components of a Potential Business Model Market viability for freight is within sight. For passengers, only ferries and niche markets are still viable and the business will keep on shrinking. Freight Market Outlook. For freight, river transport is already a low-cost carrier for low-value commodities (e.g., cement, fertilizer, wood, coal and ore, paper) over distances longer than 300km.32 The competitiveness advantage would increase greatly, provided that: (i) the government carries out minimum investments in river channelization and river port mechanization, and (ii) vessels of 300 deadweight tonnage or higher are increasingly used. Simulations show that river transport could also be competitive for medium value commodities along the Ayeyarwaddy River (e.g., petroleum products, grain, and agricultural products). Current bulk tonnage moved on all modes totaled 76 million tons in 2013. This can potentially increase to 180 million by 2025, and up to 425 million tons by 2040, not including containers. This study estimate a potential market for river transport along the Ayeyarwaddy of 30 million tons by 2025. Current 20-foot equivalent units handlings number 400,000-450,000 in Yangon Port. This is likely to double in the next 5 to 7 years. None of the 20-foot equivalent units traffic is now handled by rail or water. IWT is in a good position to seize this market, being by far the largest river transporter, and the only one with large ships. IWT will need new equipment (e.g., self-loading vessels), and a more aggressive commercial management, and will potentially need to invest in terminals. Passengers. For passengers, river transport is only a viable alternative for very low income people over short distances, and only in situations where bus transport is at a disadvantage (e.g., river crossing, connections with the Ayeyarwaddy delta). In terms of travel time (at best 5 knots on the average), river transport cannot compete with road transport. People-transport on the rivers will eventually be confined to remote areas where there are no road accesses and to tourist and leisure travel. The nature of the market suggests that the government should consider setting up public service obligations for social reasons. The public service obligation should initially be with the historic transporter, IWT, but after a transition period of 2–5 years, they could be tendered out, and eliminated whenever they do not meet a strong rationale.

32

The basis for these estimates is in ADB. 2016. Myanmar Transport Sector Policy Note: How to Reduce Transport Costs. Manila


Reducing IWT’s operating cost can come from the following areas: ƷɆ

ƷɆ

ƷɆ

ƷɆ ƷɆ

2.

Fleet replacement. The highest components of operating cost are related to vessel and fuel. IWT’s current fleet is old and has not kept pace with changes in cargo packaging. In many ways, the design is ill suited to modern shipping practices. Replacing it with a tug and barge system of operation is far more efficient in terms of physical handling of cargo and fuel consumption. Rationalizing its services. Scheduled services in which a vessel carries both passengers and cargo need to be separated into cargo services and passenger services. Services that are not profitable should be discontinued. River transport has clear advantage over modes for long hauls and emphasis should be given to services with distances over 100 km. Mechanical handling of cargo. Application of mechanical means (cranes, forklift trucks, stackers, etc.) to cargo handling is possible when proper terminal facilities (jetties, warehouses, working areas, etc.) are available. Bulk shipments. It is advisable to ship cargo in bulk, where the commodity is amenable to bulk handling, and where bulking is not possible, to unitizing, palletizing, shrink-wrapping, etc. for loading. Container shipping. Containers shipping yields significant cost advantages. In addition, containers that are destined to or originating from inland ports can be transported on a “through-bill of lading” without having to break bulk or consolidation in Yangon, reducing overall transport cost.

Options for Restructuring

Option 1: Partial Sale of Inland Water Transport Without recovery of the navigable river system and basic services, IWT will be bankrupt in 2 years. Then sale of IWT in pieces is the most likely option. This is feasible as parts are valuable: some subsidiary units, some vessels, and land assets and buildings.

Option 2: Full Sale of Inland Water Transport To a Private Investor This will require a change in regulations limiting ownership in IWT to allow full control by a new investor. Conditions of sale need to define requirements to retain staff; limitations to the sale of assets, particularly land; and a commitment to continue as a full inland waterway transport operation. Private sector bidding should be international to limit collusion.

Option 3: Conditional Corporatization with a Time Limit IWT continues to implement the new business plan but under severe physical constraints. Support from the government to rebuild a navigable river system and create some ports is essential for survival. If no support is available, then options revert to 1 or 2. Option 3 is recommended. It is conditional, since a lot of work will need to be done and it is unclear whether the IWT has the resources or the energy to carry out the needed restructuring. The success of the option is predicated on the government, through the Directorate of Water Resources and Improvement of Water Systems and possibly the Myanma Port Authority creating a viable river infrastructure for navigation and shipping. For IWT, it needs to be restructured to address customers’ needs. That means business re-engineering and development and an agreement on financial relief from pension and debt obligations from the Ministry of Transport and the Ministry of Finance.

68Appendix 1

Table A1.1: Options for Restructuring Inland Water Transport Option

Benefits

Drawbacks

Constraints

Comments

Partial Sale of Inland Water Transport

Sale of pieces may yield the highest return to the government. Shipyards, dockyards, vessels may be attractive to other investors or operators. IWT land can be retained by the government and managed separately.

There is likely to be staff redundancy in this option. Some staff can remain with the assets as crew on vessels and workers in maintenance or fabrication yards. Most others will lose jobs. Remote services will need to be provided on a PSO basis.

Piecemeal sale of the assets of IWT may be the most effective means of realizing value to the people of Myanmar from IWT but it effectively gives up on the option of having a significantly large company working in the inland waterways sector.

Full Sale of Inland Water Transport To a Private Investor

Full privatization of IWT will require the government to allow full ownership of over 50% controlling interest. Possibilities exist for a shipping company or freight forwarding company to buy all of IWT.

Without changes to the navigation system, the same concerns exist as for IWT currently. Companies may want IWT for its assets but that may not give the government the return it expects. Restrictions would accompany the sale.

Sale to a private investor is possible but the investor is likely to act rationally and that means liquidating as much of IWT as is liquid. To forestall asset stripping, the government will likely impose limits on the sale

Conditional Corporatization with a Time Limit

Option similar to Option 1 above. IWT remains as an SEE and exists. Staff remain. New management systems are developed. River terminal docks are built and moved into place. Local jurisdictions cooperate with managing the river ports.

Uncertain ability to survive until infrastructure is restored. Uncertain ability to recapture lost traffic, particularly passengers. Cargo traffic is more viable but depends on river ports. River ports also depend on river navigation. Unlikely to get a navigable river system in time.

Corporatization may be possible although difficult. The Ministry of Finance will need to agree to structural changes in the financing of IWT for areas like pension obligations and historical debt. Land assets and other assets will need to be sold. A business plan will need to be prepared, and a fixed timeframe needs to be agreed upon. It is suggested here that 5 years should be sufficient to show whether IWT can exist as a separate entity or whether the parts are worth more than the whole. continued on next page


Table A1.1 continued Option Maintain Status Quo

Benefits

Drawbacks

Constraints

Comments

IWT can continue as is with limited government funding but gradually losing market share. Investment in river infrastructure may make IWT more viable over time. IWT will target long distance bulk transport. IWT can construct its own ports. Joint ventures with local jurisdictions are possible for port support

Uncertain ability to survive until infrastructure is restored. Uncertain ability to recapture lost traffic, particularly passengers. Cargo traffic is more viable but depends on river ports. River ports depend on river navigation. Unlikely to get a navigable river system in time.

ƷɉɆ+))%0)!*0Ɇ+"Ɇ the government to provide a sustainable river infrastructure and navigable river management system; ƷɉɆ+))%0)!*0Ɇ+"Ɇ the government to provide basic riverbank infrastructure (ports) to support more efficient long distance cargo transport; ƷɉɆ+))%0)!*0Ɇ+"Ɇ the government to support “basic social service provisions” for remote communities and the poor; ƷɉɆ!%/%+*Ɇ5Ɇ0$!Ɇ government that IWT can provide services more effectively than the growing private sector river operators

It is not likely that the government will agree to this option. This is the best-case option if IWT remains as a government entity on the government budget. But much depends on the investment in the river navigation system and without that there is no future for IWT.

IWT = Inland Water Transport, PSO = public service obligation. Source: Authors’ own.

3.

Development of a Restructuring and Business Plan

IWT will need to be reformed into a company that can exist and prosper when the inland river navigation and shipping infrastructure are restored and the river ports are created. The IWT business plan could consider the following: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

developing a revised organization structure focused on customer service, allocating responsibility and accountability for performance; developing a new staffing plan to move to a merit-based organization with the possible infusion of international experience to help train senior managers; developing a financial control and monitoring system to allow IWT to monitor the profitability of the various services; negotiating public service obligation arrangements from the government for services that are not able to cover their full cost of operation; financing renewal of vessels from the sale of old vessels;

70Appendix 1


selling maintenance or fabrication facilities that are not profitable and unlikely to become profitable under the new business focus; selling unused land to create a pool of working capital to allow for vessel refurbishment or renewal; developing river ports in cooperation with landside municipalities, beginning with Mandalay Port; developing a marketing and customer service department to target increased movement of bulk freight; and negotiating with Yangon Port terminal operators to develop a sea-to-river transfer mechanism to allow for container movements up river once the Mandalay Port can handle container transfers from vessel to dockside.

This transition is likely to require about 5 years to develop and implement. It is likely that some government support will be needed during that period, depending on how quickly the navigation system can be restored and how successful are the discussions about establishing river ports.

APPENDIX 2

Road Transport

1.


Status and Nature of Market The stated objectives of Road Transport (RT) are: ƷɆ ƷɆ ƷɆ

ƷɆ

to ensure free competition for road transport to prevent development of transport monopolies; to provide safe transport services; to provide transport services to safeguard national sovereignty, support border areas development, state-run development projects, state-sponsored ceremonies, and other transport services required by the state; and to participate in the domestic production of motor vehicles, spare parts, and major repair of the RT fleet.

In practice, Road Transport is a passenger and trucking company. Its main business is to serve government freight and staff transport needs. As a side business, RT leases its trucks to its own drivers, and commisioned passenger transport services such as pilgrimages. There is no clear rationale for keeping public ownership of RT. Such services can be equally delivered by the private sector, which again comprises many smaller, more competitive operators. According to the framework defined in section 5, RT should be considered for quick corporatization and privatization after a transition period. Road Transport has close to 3,000 staff (Table A2.1). The road freight services division provides freight transport through 18 branches established in the significant towns of various regions and states of the country. Out of 18 branches, 3 are in Yangon City. It operates a fleet of 1,245 trucks of which about 1,100 are operational. Passenger Services operates a fleet of 284 buses out of 6 branches in Yangon City to operate urban and intercity transportation. It also extends services at two other major cities—Mandalay and Mawlamyine. There are 4 main base workshops responsible for providing repair and maintenance services and production of motor spare parts. Three are located in Yangon and one in Mandalay.

Table A2.1: Road Transport Staff Department Total

Admin Officer

Other

49

382

426

Finance Officer 11

Other

Operations Officer

166

179

0 1667

Other

Engineering Officer

Other

1667

28

639

677

Total Officer 88

Other 2854

2942

Admin. = Administration. Source: Author’s own, based on data provided by Road Transport.

71

72Appendix 2

Issues and Concerns RT market is stable, but its market share has dwindled. It is estimated that RT accounts for about 1% of road freight and 5% passenger inland transport volumes in Myanmar. This is well below its 1990 shares of 6% and 50% respectively. The company’s traffic has stagnated since 2000 for passengers (Figure A2.1) and since 2005 for freight (Figure A2.2), in a quickly growing market. RT is a large company, but not of critical importance to the sector. Its fleet comprises 1,100 trucks, mainly of medium size (6.5 to 10.0 tons capacity), and 285 large buses (40 seaters). It has 3,000 staff. This makes it a large company in a country where road operators are small. However, its fleet only accounts for 2% of the nation’s heavy duty truck and bus fleet. The company’s bus fleet was reduced in the 1990s from above 800 to the current level. The truck fleet has decreased marginally (1,385 trucks in 1990). The service offered has been constrained by cost and by equipment. RT’s urban passenger service is now largely dominated by bus services to the state-owned factories in the new industrial development zones around the main cities. Some service is also provided to the remote rural areas and in response to emergency situations.

Figure A2.1: Road Transport Passenger Traffic 1,800

140

1,600

120

1,400 100

1,200

80

1,000

Passengers (Million) (left axis)

800

60

Passenger-miles (Million) (right axis)

600

40

400 20

200 0

3 20 1 FY

12 20

11 FY

20

0 FY

20 1 FY

09 20 FY

08 20

07 FY

FY 20

06 FY

20

05 20

4 FY

20 0 FY

00 20

95 FY

19 FY

FY

19

90

0

Source: Authors’ own, using data from Road Transport and Ministry of National Planning and Economic Development.

Road Transport73

Figure A2.2: Road Transport Freight Traffic Freight Tons (Million) (left axis)

3.0

350

Freight Ton-miles (Million) (right axis)

300

2.5

250 2.0 200 1.5 150 1.0 100 0.5

50 0

13 20

FY

20

12

11 FY

10

20 FY

09

20 FY

20

08 20

FY

07 FY

20

06 20

FY

05 FY

20 FY

04 20

00 20

FY

95 FY

19 FY

FY

19

90

0.0

Source: Authors’ own, using data from Road Transport and Ministry of National Planning and Economic Development.

RT also provides bus services for public servants to commute from Yangon to Naypyitaw each week—to Naypyitaw on Sunday and to Yangon on Friday. Charges are MK 3,500 ($2.72) per trip, with MK350 ($0.27) for insurance. Commercial ticket prices are MK 6,700 ($5.21) per trip. There are four routes approved between Yangon and Naypyitaw and two routes from Mandalay to Naypyitaw. RT operates 247 buses (198 in service)—76% of which are older than 15 years. At the moment, RT carries approximately 1%–2% of the passenger traffic in the country. Freight transport is normally provided to government companies or to customers looking for low cost service. Discussion with RT management suggests that about 25% to 30% of annual revenue comes from carrying cane to the crushing factories. Especially given unmade roads, this is rough work that higher value carriers are not interested in supplying. For this traffic, RT contracts for industrial service and net revenues are split between RT and the drivers. Truck drivers also rent the vehicles for a month (approximately 70% to 80% of fleet) and are able to use the vehicles for other business in addition to the RT business. RT has first call on the vehicles when business is available but if a monthly rent is paid for the vehicle, the time used to carry RT goods or passengers is added to the monthly rental time. Rentals range from MK250,000 ($194.57) to MK350,000 ($272.40) per month. Drivers are responsible for parts, maintenance, and all fuel cost. Revenue from RT business is divided by formula with the drivers.

74Appendix 2

Figure A2.3: Road Transport Revenues and Expenditures (Constant MK million, 2013) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 FY1990 FY1995 FY2000 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Revenues

Expenditures

Investments

Source: Authors’ own, using statistics from Road Transport and Ministry of National Planning and Economic Development and ADB calculations.

Financial Viability and Sources of Revenue RT has made operational deficits since 2007. The gap is widening since 2012. In FY2013, the operational ratio was 133%. A road transport company should have an operational ratio of about 80% to be profitable in Myanmar. Over the past 2 years, RT lost about $3.5 million on operations but it received about $13 million of government operational support and capital. It currently has about $11 million of working capital so it is in a relatively healthy capital position if it wished to use that funding for future investment. However, since 2012, the company has experienced a reduction of its average rates coupled with an increase in its unit costs (Figure 3). Freight makes about 67% of RT’s revenues, and passenger 15%. Other revenues (land and building lease, training revenues) have grown in recent years to 18% of total revenues. They may account for half of FY2014 revenues if the government accepts RT’s 2014 proposal to lease part of its land or buildings (Figure A2.5).

Road Transport75

Figure A2.4: Road Transport Unit Costs and Revenues (Constant MK 2013) 40 35 30 25 20 15 10 5 0 FY1990 FY1995

FY2000 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011

Passenger revenues / pass-mile

Freight revenues / ton-mile

FY2012 FY2013

Expenditures / unit of traffic

Source: Authors’ own, using on statistics from Ministry of National Planning and Economic Development.

Figure A2.5: Road Transport Revenue Composition (MK million)

14,000 12,000 10,000 8,000 6,000 4,000 2,000

Passenger revenues

Freight revenues

RE = Revised Estimates. Source: Authors’ own, using on statistics from Road Transport.

Other revenues

F Pr Y2 op 01 RE ose 4 d

13 20 FY

FY

20

12

11 20 FY

10 20 FY

FY

20

09

08 20 FY

07 20 FY

06 20 FY

05 20 FY

FY

20

04

0

76Appendix 2

Figure A2.6: Road Transport—Operational Costs (MK billion) 12000

10000 Depreciation 8000

Other Operational Costs Maintenance Spare Parts

6000

Tires Fuel and Lubricants

4000

Pensions Salaries, Benefits and Gratuities

2000

E)

13 FY

20

14

(R

20 FY

12 FY

20

11 20 FY

FY

20

10

0

RE = revised estimates Source: Authors’ own, using data from Road Transport.

Competitiveness It is difficult to compare RT on a competitive basis with a private company, as its business involves both leasing and operations. Since RT leases out its truck fleet and since the drivers are responsible for maintenance, parts and fuel, the cost structure of RT is different than a private fleet. Figure A2.6 shows the breakdown of RT’s operational costs. Their striking feature is the large and growing size of salary and pension costs. Pension cost remain high on a percentage basis because while RT leases vehicles to its drivers, and drivers are essentially now entrepreneurs, they also remain on the RT staff books and accumulate pensions.

Assets Only two categories of assets are significant on the RT balance sheet—buildings and property and vehicles. The value trend for both is downward as shown in Figure A2.7. This reflects the lack of asset renewal reflected in the depreciated book value decline. It also suggests that the land value is at historic book value and not current market value.

Road Transport77

Figure A2.7: Book Value of Road Transport Assets ($ million) 2.5

2.0

1.5 Property (land & buildings) Operational vehicles

1.0

0.5

0.0 FY2010

FY2011

FY2012

FY2013

Source: Authors’ own, using data from Road Transport.

Fleet The fleet is generally old and outdated. Approximately 75% of the bus fleet is more than 15 years old. Most bus companies depreciate their bus fleets over a 12-year life. In RT’s case, most of the buses are beyond their normal working life. Buses are sourced from a variety of companies, illustrated in Figure A2.8. The many types of buses complicate maintenance and also supply of spare parts (Figure A2.9).

Figure A2.8: Age of the Bus fleet

Figure A2.9: Composition of the Bus Fleet

16,6%

2,1%

30,11%

1,0%

From 1 to 5 years

29,12%

64,24%

Airconditioned Bus-45 Seaters

7,3%

62,25%

19,7% From 6 to 10 years

Daewoo-45 Seaters

7,3%

Dongfeng-45 Seaters

1,0% BX(HINO)-45 Seaters

10,4%

Leyland-45 Seaters

From 11 to 15 years BM (HINO)-25 Seaters

From 16 to 20 years

RM (HINO)-25 Seaters

48,20%

Mini Bus-25 Seaters

139,52% 80,32%

From > 20 years

Dongfeng-Hard Top KM(HINO)

78Appendix 2

Road Freight Department’s truck fleet is mainly composed of medium trucks of 2 axles, with a loading capacity of 6 tons–10 tons. These trucks used to be the norm in Myanmar when it was impossible to import larger trucks. Since the relief of constraints on truck imports, their high running costs have made them uncompetitive, except on secondary corridors and rural roads.

2.

Options for Restructuring

Asset Sale Sale of assets may not raise much money. Vehicles are out of date and there is not likely to be a strong market for them. Depots are useful but only a limited number may be attractive to the private sector. In many cases, the depots can likely be given to the municipality to be used as municipal bus stations or freight forwarding depots. Noncore land can be retained as a government asset and used to cover the cost of pension obligations and to pay for redundancy to staff. The biggest drawback to this option is the impact on staff, many of whom are unlikely to find positions with the companies who purchase the assets. As a result this may be the least attractive of the options.

Unitized Sale Sale by international tender is a viable option. The attraction of this option is the full transfer of staff could be made a condition of the sale. This will ensure all staff keep their jobs with the new company and, in turn, it will assure the new company that the knowledge of the staff will not be lost in the sale. The sale can be defined to include only those assets that are considered core. This would include most of the depots and all of the main buildings but would not include noncore land. That would normally be reallocated to the governments property management company. A transaction advisor would normally be hired to manage this kind of sale.

Joint Venture Sales A number of new companies can be established with willing joint venture partners to assume control over selected components of the current business or to identify and transition parts of RT into a new business. This has the advantage of linking components of the RT business to competent partners who understand and are interested in working with those components. The staff currently working with those components of business can be retained by the successor companies, but it is likely that not all staff will be able to move to this joint venture model and the remaining staff will need to be considered under a different model.

Corporatize as a Share Limited Company It is hard to see how RT can survive in a competitive market without drastic changes. This model can also be combined with selected agreements with joint venture partners to make the company more stable and where possible, to improve the fleet assets. This option leaves the door open to staff participation in the new company and the transition to a share limited company will instill new energy and entrepreneurial commitment to the future health of RT. It also requires aligning the RT business model with the competition:

Road Transport79

(i) aligning fuel cost with market prices, (ii) subsidizing the difference between rates charged on government contracts and market rates, (iii) using current assets (land) to invest in fleet modernization, enter new markets and reduce staff, as well as look for joint ventures, (iv) reduce or stop the increase in pension costs. At the moment, RT has sufficient cash resources to embark on a modest fleet renewal program. But such a strategy will quickly deplete the current cash resources. It is only a viable option if in the longer term, RT has a viable business model that can be competitive. It is not possible to judge that possibility at the present time, since RT has never operated as a fully competitive commercial company.

Table A2.2: Options for Restructuring Road Transport Option

Benefits

Drawbacks

Constraints

Comments

Asset Sale

This option may maximize the value to Myanmar of the current RT assets. Land value may be attractive and raise significant money. Some small transfer of business to the private sector.

This option essentially just wraps up RT and it will cease to exist. Staff will be laid off and will need to find new jobs. This may be difficult for the government to support.

Staff rules will need to be followed. Pension obligations will need to be respected. Open bidding for equipment and sale of land is needed to ensure probity.

While fairly straightforward, this option will have a strong, negative effect on staff and for that reason it may be the least attractive option for the government.

Unitized Sale

All assets are transferred. Staff are transferred and keep their jobs. Business can rely on high quality management systems from purchaser. With right partner, a good opportunity for success in future.

A condition of sale will be to withhold some noncore land assets. This may reduce the attractiveness of the RT company to outside buyers. Equipment will not be valued highly. Value of sale to the government will be modest.

Likely need a transaction advisor to set up the privatization process. Many models exist. This is not a difficult option but needs to be structured sensibly. A transaction advisor will give useful guidance on how to structure the sale.

This may be a viable option and should be considered in the development of the business plan. It will keep RT alive. It may prosper under new management. Staff can continue with RT and pensions can be covered by sale of noncore land.

Joint Venture Sales

Attractive because lines of business can be matched with other competent companies in the same lines. Staff can transfer to the new companies and keep their jobs.

Not all of the current business is likely to be attractive. Some will be left behind. Some restriction on transfer of land assets will be needed for the lines of business companies.

This is largely the planned approach currently underway. Limits remain on percentage of ownership in the RT companies. This may need to be changed in the regulations.

This option has the potential to rescue parts of the RT business and some of RT staff. The JVs are likely to require controlling interest in the JV company. The residual RT may then become a holding company with shares in a number of other companies. continued on next page

80Appendix 2

Table A2.2 continued Option Corporatize as a Share Limited Company

Benefits This follows the MA model. It offers opportunity for part of RT to survive as a company. The size is modest but it could exist in the private sector. Land sales may be needed to recapitalize and buy vehicles.

Drawbacks Little marketing experience. Bus service is mainly for public servants and not commercial. Truck traffic is low value and not competitive with other companies. Some business may be possible. Needs development of a business plan.

Constraints Little marketing and private sector management capacity. Vehicle fleet is very old and needs replacement. Other companies in the market are very aggressive and have a head start. Success may be difficult to achieve.

Comments This is a possible option. It offers the chance of future success but it is a challenge. It will require more management time and may lead to a catastrophic collapse. If this option is chosen, staff should be willing to support it.

JV = joint venture, MA = Myanma Airways, RT = Road Transport. Source: Authors’ own.

Recommended Option A modified form of the joint venture model is likely the most attractive for all parties. Currently, RT is in negotiations with a company from the Republic of Korea interested in establishing a freight forwarding company in Myanmar, partly using RT assets. Some contracts—such as the bus service to factories or public servant transport to Naypyitaw, if accompanied by a defined public service obligation, may also be attractive to a private investor. RT has the capital needed to provide its share of any joint venture initiative. But that option as noted above is unlikely to be able to employ all the current staff. Once the options for establishment of joint ventures have been considered and exhausted, then the residual part of RT that has little prospect of commercial viability on its own will remain. A number of options can be explored for that residual. For instance, drivers can be given the truck that they rent, and with a pension buyout they can become owner operators of their own business. Some of the bus drivers may wish to retain the service contracts to the Yangon Region industrial estates and continue that business. It is likely that one or more of the potential joint venture will wish to use some of the vehicles as a starting point for a new business, so some of the drivers will be retained. Because the book value of the vehicles is now so small, there is very little impact on the balance sheet in transferring those vehicles to the drivers. The working capital base can also be used to pay for redundancy or retraining for other staff. As the economy of Myanmar begins to grow rapidly, educated and trained staff will be in high demand and it will not be difficult for staff to switch from one job to another.

3.

Development of a Business Plan

The above options are currently being considered. A business plan based on the strengths of RT and options for joint venture with private partners, both international and domestic need to be defined. The selection of joint venture partners and the establishment of those new companies with transfer of assets and staff is the first order of business.

Road Transport81

The business plan should then also define what the strategy and practical steps are for continuing some of the business areas that may be attractive to some parts of the company (regional bus service) and what action can be taken to ensure that the residual staff are treated fairly and are given a chance to move to other parts of the economy. As noted in option 3 above, this may involve establishment of a share-limited company for the residual business or the establishment of RT as a holding company with shares in a number of independent businesses. This business plan should be reviewed and approved by the Ministry of Transport and Communications. Its implementation should not take more that 18 months.

APPENDIX 3


1.


Status Ports are administered by the Myanma Port Authority (MPA). MPA reports to the Ministry of Transport and Communications and is headed by a managing director. Yangon is the primary gateway to the country. Eight other ports (Dawei, Kawthong, Kyaukphyu, Mawlamyine, Myeik, Pathein, Sittwe, and Thandwe) serve as feeder ports. In its current form, MPA was founded in 1989. Its headquarters are in Yangon. The defining laws that govern the MPA were all enacted before independence. MPA is responsible for providing terminal facilities and services to shipping. However, despite the nomenclature, which infers a national body (port authority of Myanmar), it considers itself responsible only for the provision of facilities and services to international shipping while domestic shipping (including inland ports) is the responsibility of IWT. Consequently, while MPA has a healthy balance sheet in the past and facilities for international shipping are generally adequate, facilities for domestic shipping are not. Several terminals operated by the private sector are engaged in container handling. These terminals are owned by MPA and leased to operators for a specified period under certain terms and conditions. MPA staff has reduced from 11,000 to 3,200 over the past 3 years. Officers currently number approximately 300. A new board of directors has been formed with seven members as below: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

chair managing director port operations director shipping operations director legal specialist business specialist management specialist

At the moment, legislation is being passed to change the status of MPA into a more autonomous corporate entity. Under the pending law, MPA staff would remain as government employees with all rights. MPA noted that it can set its own salaries but as with IWT, this may mean it can top up government stipulated salaries. Looking forward, MPA sees staff stabilizing at around 4,000.

82

Myanma Port Authority83

MPA will have the right to amend fees for services provided to users. But all requests to amend the fee structure will need to be submitted to the MOT for review and approval prior to implementation. Foreign or domestic investment in port service operations is now allowed and will also be allowed in future. This covers areas such as port terminal construction and operation and contracted delivery of services such as stevedoring. Currently in Yangon port are eight terminals of which seven are private and one is owned by MPA. In addition, it has 18 international wharves, two inland container depots and 40 pontoon type jetties catering to domestic traffic. There is a clear rationale for keeping public ownership of MPA. Port ownership and management is a function that is more often than not directly under the control of the national and/or local governments. However, the operation of the large port is very susceptible to private delivery and competition. According to the framework defined in section 5, MPA should be considered for quick corporatization, aim for financial sustainability and sign a performance contract with the government. MPA terminal operations could be privatized.

Issues and Concerns Traffic. Traffic handled by MPA has been fairly steady, in the region of 12 million tons until 2008 when it rose quickly to over 20 million tons. The increase has been particularly sharp for containerized cargo.

Figure A3.1: Myanma Port Authority Annual Traffic (in Twenty-Foot Equivalent Units) 400,0000 350,0000 300,0000 250,0000 200,0000 150,0000 100,0000 50,000 0 2000

2001

2002

2003

2004

Import

2005

2006

Export

2007

2008

2009

Total

Source: Authors’ own, using data from Ministry of National Planning and Economic Development.

2010

2011

84Appendix 3

Figure A3.2: Myanma Port Authority Total Traffic (Million Tons) 30

25

20

Outshipments

15

Inshipments 10

5

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Revenues. From 2007 to at least 2011 (last data available), MPA has not been covering its costs. The revenue and expenditure by year are shown in Figure 15. In the period 1991 until 2007, MPA revenue and expenditure were largely perfectly balanced. But these costs rose when fuel prices were increased in 2007, while revenue did not increase in line with costs. This may be explained by the lack of adjustment to the levels of fees and charges in the legislation that were defined in 1998 and have not been changed since. In March 2011, MPA began dredging the Port of Yangon to increase the size of vessels that can dock at the port to 35,000 deadweight tons, up from the current capacity of 15,000 deadweight tons. Maintenance dredging is also needed for the two constraining lower river bars with virtual continuous dredging needed off Monkey Point. The lower bar is not frequently dredged relying instead on tidal range to increase the available depth. MPA provides compulsory pilotage services for incoming and outgoing vessels. There is no vessel traffic control system and pilots are responsible for the movement of the vessels in the port area. Stevedoring services are provided by the port.

2.

Options for Development and Restructuring

MPA can generally follow the process of corporatization described in section 5 of this report. Should deficits have remained since 2011, MOT should make it a priority to raise MPA rates to restore its financial balance and reach the proposed benchmark operating ratio of 0.8.

Myanma Port Authority85

Figure A3.3: Myanma Port Authority—Revenues and Expenditures (MK million) 7,000 6,000 5,000 4,000

Revenues

3,000

Expenditure

2,000 Investments

1,000

10 20 FY

09

08

20 FY

FY

20

07 20 FY

FY

20

06

05 20 FY

04 20 FY

FY

20

00

95 19 FY

FY

19

90

0


A business model based on the principle of public ownership and private sector operation is appropriate. However, while the arrangement is generally satisfactory, it appears that there is room for improvement. The number of berths is high and throughput per berth is low. Terminal operators’ performance needs to be improved by requiring them to meet certain targets as a condition of the lease (berth throughput, vessel turnaround time, dwell time of containers in terminal, equipment downtime, etc). Berth productivity can be improved by increasing the deployment of more equipment (quay cranes and yard stackers) and use of information technology to drive operating systems and procedures. Adequately equipped and properly operated, a throughput per berth of 1 million twenty-foot equivalent units is achievable. The port of Yangon has outgrown its location and there are compelling reasons to relocate it to a more suitable place. It occupies land in the heart of the city that can be put to more productive use. It is limited by space for expansion. Traffic to and from the port adds to the road congestion in the city. In addition, Yangon is located up the river a distance from the sea in confined waters. Access to the port is difficult and limited to vessels drawing a draught of less than 9 meters. A new location with deeper water and better access has to be found if Yangon is to be able to handle the new generation of container vessels. MPA could develop a river–sea interface. The linkage between the sea and the river system in Myanmar does not exist. River vessels rarely put to sea. Seagoing vessels do not move upriver. The interface point is at Yangon but there are no facilities for ease of transfer of cargo from river to sea or from sea to river. Such transfer facilities are essential if the river system is to perform as it should. Particularly important are means of moving both bulk cargo from river to sea and vice versa as well as containers. Ship-to-ship transfer is possible. Selfunloading equipment can also be used to support bulk movements. Away from Yangon, ports in the country appear passive. Little development has taken place in these ports. For a country the size of Myanmar, only one gateway port (Yangon) does not seem sufficient. One other port for the north and one for the south of the country would be desirable.

86Appendix 3

In addition, MPA could play a useful role in the development of river ports. The lack of formal river ports has been identified as a severe constraint to the development of river transportation. Part of the reason behind this situation is that there is no clear authority in charge of developing these ports. Rather than create new authorities, it could be advantageous to make MPA the manager of river ports. In this model, MPA could create local subsidiary port authorities jointly owned with local governments. Ship movements in the harbor can be intensive. Until a new location is found, ship movements in the harbor are expected to increase. In a busy port, traffic monitoring and movement control is essential to safe navigation. The installation of a vessel traffic management system (VTMS) may be timely. This report also suggests (section 4) the potential interest for a merger of MPA and the Department of Water Resources and Waterway Improvements (DWIR) into a Myanma Port and Waterways Authority. This setting would present advantages as it would: (i) simplify the interfaces around the river port of Yangon, (ii) give a single entity a clear mandate to develop the water infrastructure, (iii) create synergies, and (iv) allow some crosssubdization between linked activities. This organization would have a mandate to develop water transport infrastructure in the country. It would be self-financing from port access and operations charges, dredging contracts and sale of material, operation of river ports and terminals, and user charges for river operations.

Myanmar Transport Sector Policy Note How to Reform Transport Institutions Better transport is essential to Myanmar’s development. After decades of underinvestment, Myanmar’s transport infrastructure lags behind other regional countries. Sixty percent of trunk highways and most of the railways need maintenance or rehabilitation. River infrastructure does not exist, while 20 million people lack basic road access. Can the transport sector deliver upon the master plan’s objectives? What is needed to improve the quality of the infrastructure and services for the industry? How can basic transport services be provided to all? How can Myanmar reduce the economic and social cost of transport? This report is an attempt to answer these questions.




RIVER TRANSPORT



Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2016 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2016. Printed in the Philippines. ISBN 978-92-9257-465-9 (Print), 978-92-9257-466-6 (e-ISBN) Publication Stock No. RPT168058-2 Cataloging-In-Publication Data Asian Development Bank.

Myanmar transport sector policy note: River transport. Mandaluyong City, Philippines: Asian Development Bank, 2016. 1. Transport.

2. Myanmar.

3. River transport.

I. Asian Development Bank. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Attribution—In acknowledging ADB as the source, please be sure to include all of the following information: Author. Year of publication. Title of the material. © Asian Development Bank [and/or Publisher]. URL. Available under a CC BY 3.0 IGO license. Translations—Any translations you create should carry the following disclaimer: Originally published by the Asian Development Bank in English under the title [title] © [Year of publication] Asian Development Bank. All rights reserved. The quality of this translation and its coherence with the original text is the sole responsibility of the [translator]. The English original of this work is the only official version. Adaptations—Any adaptations you create should carry the following disclaimer: This is an adaptation of an original Work © Asian Development Bank [Year]. The views expressed here are those of the authors and do not necessarily reflect the views and policies of ADB or its Board of Governors or the governments they represent. ADB does not endorse this work or guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Notes: In this publication, “$” refers to US dollars. Corrigenda to ADB publications may be found at: http://www.adb.org/publications/corrigenda The fiscal year of the Government of Myanmar begins on 1 April. ADB recognizes “Vietnam” as Viet Nam.

Contents

Tables, Figures, Box, and Appendixes

iv

Foreword

vii

Acknowledgments

ix

Abbreviations

x

Executive Summary

xi

1 Introduction

1

2 River Transport System

4

2.1 2.2 2.3 2.4

4 9 11 14

Inland Waterway Network River Ports River Transport Services River Transport Markets

3 Restoring a Functioning River Transport Sector

18

3.1 Options for Navigation Improvements 3.2 River Port Improvements 3.3 Benefits

19 23 26

4 Organization of the Water Transport Sector

28

4.1 4.2 4.3 4.4 4.5 4.6 4.7

29 30 31 34 38 44 44

Union Government Organizations Department of Marine Administration Directorate of Water Resources and Improvement of River Systems Myanma Port Authority Inland Water Transport Status of River Ports Possible Directions for Improvements

Appendixes 1 2 3 4 5

Rivers of Myanmar Constraint Locations Yearly Vessel Accidents Inland Water Transport Charges Cargo Forecast 2030

47 49 52 54 55

iii

Tables, Figures, Box, and Appendixes

iv

Tables 1 Extent of Navigable Rivers 2 Monthly Rainfall 3 Least Available Depth of the Ayeyarwaddy and Lower Chindwin Rivers 4 Draft Restrictions by River Stretch 5 Annual Changes in Water Level 6 River Vessel Cost Data—2013 Survey 7 Average Long-Distance River Passenger Fares as of 2014 8 Passenger Transport Volumes by Distance 9 Freight Transport Volumes by Distance 10 Composition of River Transport Freight 11 Freight Volumes by Mode and Commodity 12 People’s Republic of China’s National Standard of Inland Waterway 13 River Network Navigability 14 Possible Channel Depth Objectives 15 Staff Levels of Inland Water Transport 16 Inland Water Transport Vessels in Use

5 5 7 7 9 11 13 14 15 15 16 20 20 21 39 40

Figures 1 Sedimentation Examples for Magway and Monywa 2 Annual Spending on River Infrastructure 3 Typical Loading and Unloading Operations at Mandalay Port 4 Passenger-cum-Cargo Vessel 5 Freight Barge 6 Inland Water Transport Long-Distance Passengers 7 Inland Water Transport Ferry Passengers 8 Mandalay Port Jetty Options 9 Typical Cross Section of Floating Dock 10 Floating Pontoon Dock and Access Bridges in Yangon 11 Current Freight Transport Cost 12 Possible Freight Transport Cost 13 Ministry of Transport Organization Chart 14 Directorate of Water Resources and Improvement of River Systems Organization Chart 15 Myanma Port Authority Organization Chart 16 Trade by Sea 17 Coastal Shipping 18 Myanma Port Authority Container Traffic

6 8 10 12 12 17 17 24 25 25 27 27 29 32 35 35 35 36

Tables, Figures, Box, and Appendixesv

19 20 21 22 23 24 25 26 27

Myanma Port Authority Container Traffic Myanma Port Authority Cargo Myanma Port Authority Total Traffic Inland Water Transport Organization Chart Inland Water Transport Passenger Traffic Inland Water Transport Freight Traffic Origin of Inland Water Transport Revenue Inland Water Transport Revenue and Expenditure Inland Water Transport Costs and Revenues as of 2013

36 36 36 38 41 41 42 43 43

Case Study on the Viet Nam Inland Waterway Sector

33

Box

Appendixes Tables A1 Major Rivers of Myanmar A2.1 Constraint Locations on Ayeyarwaddy River in Low Water Season (November 2013—May 2014) A2.2 Constraint Locations on Chindwin River in Low Water Season (November 2013—May 2014) A3.1 Yearly Losses and Causes of Vessel Accidents A3.2 Yearly Vessel Accidents in Myanmar’s Inland Waterways A4.1 Loading and Unloading Charges A4.2 Port Charges A5.1 Cargo Forecast 2013

48 49 51 52 53 54 54 55

Map Myanmar Navigable Waterways

xiv

viTables, Figures, Box, and Appendixes

Come you back to Mandalay, Where the old Flotilla lay: Can’t you ‘ear their paddles chunkin’ from Rangoon to Mandalay? Rudyard Kipling. 1892. Mandalay

Foreword

M

yanmar is at a historic milestone in its transition into a market economy and democracy. After decades of isolation and stagnation, the country has, since 2011, been undergoing a fundamental political, economic, and social transformation at unprecedented speed and scope. Achieving the country’s high growth potential will require continued reforms and structural transformation, especially in advancing major investments in infrastructure, developing relevant capacities and skills, and enhancing the business environment. This will enable Myanmar to reach the ranks of upper middle income economies by 2030. Due to massive underinvestment and neglect in recent history, Myanmar’s infrastructure lags behind its Association of Southeast Asian Nations neighbors, and hinders access to markets and social services. High transport costs and associated limited access to markets and services are among the main causes of poverty and regional inequality. Twenty million people still live in villages without access to all-season roads. The questions then are: how can basic transport services be provided to all? What does it take to improve the quality of the transport infrastructure and services for the private sector? How can Myanmar reduce the economic and social costs of transport? The Government of the Republic of the Union of Myanmar is committed to addressing these questions, and the underlying issues. Towards this end, the Government has commissioned from the Asian Development Bank (ADB) the preparation of a Transport Sector Policy Note. The Transport Sector Policy Note takes stock of the transport sector challenges, provides a strategic framework for reforms that could assist Myanmar’s policymaking, and identifies the areas where international financial and technical assistance could make the highest contribution to the development of Myanmar’s transport sector.


vii

viiiForeword




Acknowledgments

T


ix

Abbreviations

ADB DMA DWIR FY IWT JICA LAD MK MOTC MPA PRC TA UNDP VTMS

– – – – – – – – – – – – – –

Asian Development Bank Department of Marine Administration Directorate of Water Resources and Improvement of River Systems fiscal year Inland Water Transport Japan International Cooperation Agency least available depth kyat Ministry of Transport and Communications Myanma Port Authority People’s Republic of China technical assistance United Nations Development Programme Vessel Traffic Management System

Currency Equivalents (as of December 2014) Currency unit – kyat/s (MK) MK1.00 = $0.0001 $1.00 = MK1,000

Weights and Measures dwt - deadweight ton km - kilometer km2 - square kilometer m - meter m3 - cubic meter mm - millimeter t - ton

x

Executive Summary

Overview The navigable river system is a major natural resource for the people of Myanmar. For centuries, it has provided Myanmar with fresh water, irrigation for one of the most extensive rice cultivation basins in the world, and over 9,600 kilometers (km) of navigable rivers. It is one of the great natural river systems in the world. In the early 1990s, the Comprehensive Transport Study conducted by the United Nations Development Programme identified that the river transport sector had a largely unexploited potential. River channels were not engineered, ports were just landing beaches, and subsidies were heavily distortive. Because of lack of alternatives, river transport still accounted for more than 20% of national freight. With limited improvements, costs could be cut and the sector could be made sustainable. Twenty-five years on, this report updates these findings. By and large, it finds that the sector abandoned by the Government of Myanmar, left as it was, except that now it is no longer competitive with far more modern road operations. Is there still a role for river transport in Myanmar? What should be done? This report summarizes the condition of the river and river ports, outlines the status and responsibility of the main public organizations with impact on the river, and suggests some areas of physical and policy change that would have a large beneficial impact on the river transport system.

River Transport System Myanmar has an extensive river network that is well positioned to serve the country’s main transport corridors, including the link between Yangon and Mandalay. However, it is difficult to navigate the main rivers of Myanmar because of shallow waters during the dry season, shifting navigation channels, and lack of terminal facilities. Other factors strongly constrain transport efficiency. Larger vessels can navigate the segment between Yangon and Mandalay only about 70% of the year because of poor navigation conditions, and their operational speed is limited by the lack of a defined channel. Inadequate port facilities (i.e. often, there is only a beach landing with planks) results in very slow loading and unloading operations and creates long waiting times. As a result, river transport in Myanmar is low-cost, but not to level observed in other countries, where it is by far the cheapest mode of transportation. The market share of river transport is now only 6% for inland long-distance freight and only 1.5% for passenger transport. The rapid decline of Inland Water Transport (IWT)—the state-owned transporter—in the last 5 years has been compensated by an equal rise in private sector operators for freight, but not for passengers.

xi


However, even for freight, river transport has not emerged as a preferred option for any market, and is absent from bulk markets (e.g., sand, stone, ore) where it should hold a comparative advantage.

Restoring a Functioning River Transport System Small investments are sufficient to enable the development of river transport in Myanmar. Efforts should concentrate on two objectives: ƷɆ

ƷɆ

Improving the Ayeyarwaddy River channel and the navigation conditions between Yangon and Mandalay. A minimum navigation depth of 1.5 m should be targeted. Channelization through river training, dredging, and bank stabilization should be followed by scaled-up efforts by the Directorate of Water Resources and Improvement of River Systems (DWIR) to maintain the channel and publicize its location. Modern navigation aids should be provided, which will enable night navigation in the long run. Larger investments, such as weirs and locks, are unnecessary and wasteful at this stage. Developing basic river port terminals, gradually enabling mechanized operations. The slow turnover of riverside operations raises costs and constrains the use of large vessels. Because of the nature of the river, mechanization can only be gradually introduced. Low cost options for river ports, such as floating docks, should be installed before considering costlier permanent structures.

These improvements have the potential to cut Myanmar’s river transport costs by a factor three in the long run. They have a moderate cost—about $200 million—and the benefits may be up to seven times higher. By the end of this program, river transport could become the preferred transport alternative for low-value freight between Yangon and Mandalay. This report proposes that the government should make improving the Yangon to Mandalay navigation channel and terminals a major initiative. The World Bank, in cooperation with the Government of the Netherlands, is already providing assistance and financing, but resources made available in the range of $35 million–$40 million are just a small share of the investments needed (about $200 million).

Improving the Institutional and Policy Framework The organizations involved in river transport management are all under the Ministry of Transport and Communications (MOTC), but they lack clear leadership. For far too long, river transport has been equated with to IWT. The Government of Myanmar has dedicated very little funds to the maintenance and improvement of the inland waterway channels by the DWIR. River ports lack a clear custodian since the Myanma Port Authority (MPA) is only in charge of seaports, and private sector regulation has been considered a side issue by the Department of Marine Administration (DMA), which also focuses on seagoing vessels. IWT traffic has collapsed after 2010, as the government reduced its financial support to the company. By 2015, the quick decline of IWT leaves a major gap in the sector, from which it may not recover. Institutional and policy improvements are necessary to develop the river transport sector in the long run. Restructuring the IWT, which is preferable to having it declare bankruptcy, is necessary and will require government support. The Asian Development Bank (ADB) is providing technical assistance (TA) to MOTC to consider business restructuring strategies under the TA for Transport Sector Reform and Modernization.


Since IWT can no longer be the main government agency in the sector, an alternative leader is needed. This report identifies the following as possible directions: ƷɆ ƷɆ ƷɆ

DMA could be transformed into a policy and planning body, in addition to being a regulator. DWIR could be turned into a river management authority over Myanmar’s rivers, waterways, and river ports. Resources should then be earmarked for DWIR to be financially autonomous. Alternatively, DWIR and MPA could be merged into a port and waterways authority. This authority would manage and develop water transport infrastructure on behalf of the government. The advantage would be that such entity could be fully self-financing ensure some degree of cross-subsidization of insufficiently funded river transport by sea transport. Since the river approaches Yangon Port, the river and seaports should be managed by the same entity, as was the case until 1972.

The sector can only be sustainable if it mobilizes higher budgets. The historic level of maintenance and operations budget of DWIR ($2 million) would need to be doubled in the short term and possibly raised to $10 million in the medium term. At some point, earmarked sector resources (e.g., share of fuel levy, vessel registration fees) could replace government resources. In the short run, the sector will need government subsidies for capital investments of about $200 million. These would likely not be recovered, even though parallel revenue sources (e.g., water tax, land development revenues) may be mobilized. Finally, a river port development model that associates with national and regional or state governments is needed. Meanwhile, one option may simply be to declare some of the river ports are of national importance, and to request MPA to lead in their development in cooperation with DMA and DWIR.

Myanmar Navigable Waterways

1 Introduction The Situation in the 1990s This note has the special advantage of being able to look back more than 20 years ago. Considerable analytical work on the sector has been done, in particular the Irrawaddy and Lower Chindwin Rivers Study by Haskoning (1988), and the Comprehensive Transport Study (1993) funded by United Nations Development Programme (UNDP) and managed by the World Bank. The general findings of these studies are summarized in the next paragraphs. In the 1990s, Myanmar already had a large network of rivers that had not been exploited fully and effectively for transportation. Vast stretches of water were in their natural state which, if improved, could be used more extensively for the transport of goods and passengers. In their natural state, the rivers have large variations in depth between low and high water levels, and have frequent changes in the course of the river channels, especially in the delta region. Outside the delta, free movements of 300-ton vessels were possible up to Mandalay for 10 months of the year. For the remaining 2 months, only 100 tonners could navigate the river. The river network had enabled small-scale and unreliable operations. Physical constraints and a limited number of local expert river pilots hampered the growth of the inland waterway shipping industry. Navigation was difficult when the riverbed was shallow and the course constantly changing. There was heavy reliance on local pilots whose knowledge of the river was acquired from years of sailing on the river. Such knowledge was hard to come by, and this discouraged the entry of new participants in the sector. Sailing time was never certain because it depended on pilot skills. The cost of effective routine marking, dredging, and surveying the river usually ended up three times the amount budgeted. The fleet was old and small. It consisted of 491 government-owned vessels (average tonnage: 140 dwt, age: 31 years), and 1,760 vessels controlled by a large number of private operators (average tonnage: 75 dwt, age: 17 years). Most cargo barges were below 300 tons, and most passenger-cum-cargo barges were below 100 tons. Generally, the fleet was not adequately maintained and repaired; its service availability was poor; and its safety record was considered low by most standards. In the 1980s, an average of 10 boats sank every year. The fleet was very inefficiently utilized (20% usage rate), which was linked to the need for frequent repairs (80%–85% availability rate), very long waiting times at terminals (10 days average), symptoms of overcapacity, macroeconomic restrictions (lack of fuel), and slow loading and unloading (partly due to difficult port access).

1

2Myanmar Transport Sector Policy Note: River Transport

River port facilities were “only landing beaches, at which vessels temporarily moor and ground themselves to load and unload, using their own gangplank,”1 with the exception of the port of Yangon (825,000 tons/year). All operations remained manual, except for a few specialized terminals for petroleum products (pipelines) and cement or fertilizers (conveyor belts); all operations remain manual. Most ports had no storage facilities, and land access was only via steep narrow unpaved tracks suitable for oxcarts. Still, river navigation was a major mode of transport for Myanmar. In 1993, it accounted for 22% of longdistance movements of goods (both by volume and production)—2.6 million tons annually and 983 million ton-kilometer (ton-km).2 Goods transported were mainly paddy and rice (25%), petroleum (18%), and cement (11%). It was the mode of choice for the long-distance movement of petroleum (58%), cement (50%), fertilizer (45%), and paddy and rice (35%). The Comprehensive Transport Study estimated transport of passengers to be about 1.5 million long-distance passenger trips (262 million passenger-km, 3% of all passenger trips). The economics of river transport were deeply distorted, constraining future development. Freight fees (MK0.22/ton-km in 1993) charged by Inland Water Transport (IWT), the dominant carrier, were half their long-term financial costs, undermining private operators which had to charge their full costs (MK1–4/ton-km in 1993) and did not have access to subsidized fuel and foreign exchange. Tariffs bore little resemblance to actual economic costs (MK4/ton-km on a 250 km trip). Inefficiencies meant that waterway transport was not as competitive as road transport for distances less than 700 km if economic costs were considered. However, because of various subsidies and direct allocation of goods, most river transport was actually on short to medium distances. Future growth was dependent on sustained government capital injections in IWT to renew its fleet, which had been lagging behind. Economic reforms, more than investments, were seen as key to reducing inland waterway transport costs. Relieving macroeconomic constraints on fuel and foreign exchange availability, and introducing equal treatment for IWT and private operators (by terminating the freight allocation system and raising IWT’s prices to long-term costs) would have led to major gains in efficiency in fleet use and free the resources needed for a gradual modernization of the fleet. Fleet modernization itself would have cost about MK360 million per year over 15 years (total $77 million as of 1993). Limited improvements in infrastructure, particularly, (i) improving the marking system to introduce night navigation, (ii) river training and dredging the Ayeyarwaddy to increase the least available depth up to potentially 2.1 m between Pyay and Mandalay, (iii) extending port operating hours to 20 hours/day, and (iv) improving river terminals (simple pontoon with gangway) at low cost (not involving mechanization) would have yielded significant results. Overall, it was potentially possible to reduce freight river transport costs by a factor of three, and fully restore competitiveness of river transport. Users of river transport would have faced tariff increases, the growing private sector would have enjoyed better quality services and the economy of Myanmar would have improved.

25 Years Later These recommendations had not been fully implemented mainly due to shortage of funds, and past economic sanctions that isolated the country from external sources of investments. The few reforms that were implemented took time to yield results. 1 2

United Nations Development Programme. 1993. Comprehensive Transport Study.Yangon. Emphasis added. This may be underestimated: in the same year, Inland Water Transport (IWT) recorded carrying 2.1 million tons at an average distance of 200 km, or 418 million ton-km.

Introduction3

Consequently, river transport is losing market share in the transport of goods and passengers. This is due to shortcomings in infrastructure and service delivery, and is compounded by institutional weaknesses. This raises concern on the long-term viability of river transport in the country. More importantly, it poses the question, is there a role for river transport in Myanmar?

The Inland Waterway Transport Sector This note summarizes the past and current state of Myanmar’s water transport sector, its physical extent and condition, the traffic carried, barriers to its expanded role in the national transport system, and possible changes that could improve service through better logistics and institutional reform. Some of the note’s data are drawn from the Survey Program for the National Transport Development Master Plan in the Republic of Myanmar, which was completed by the Japan International Cooperation Agency (JICA) in 2014. This note starts with a diagnostic of the current situation and the limits to and potential for improvement. Most of the physical data have not changed much since the early 1990s; the river remains unimproved. But river traffic and service have changed, most significantly, the turnover of shipping service from the government to private operators. Overall, there has been a decline in the relative significance of river transport in the face of increased competition from road haulers, both trucks and buses. This decline is amplified by the creation of many new bridges across the Ayeyarwaddy River which has cut travel time and significantly improved door-todoor service for shippers and passengers. This note reviews and assesses the role of river transport in the movement of goods and people, and recommends strategic options to maintain the relevance of the river transport sector in the growing Myanmar economy. The findings are based on the following information: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

river network navigability and management; current demand and outlook; river ports and cargo handling facilities; river transport fleet (public and private); operational efficiency of the principal service provider; pricing, cost recovery, and the competitiveness of river transport; and core policies and regulations affecting the provision of transport services and navigation on inland waters.

This note then reviews the institutional structure of the sector, its mandates and responsibilities, focusing on the four key agencies of the Ministry of Transport and Communications (MOTC): the Department of Marine Administration (DMA), the Directorate of Water Resources and Improvement of River Systems (DWIR), the Myanma Port Authority (MPA), and Inland Water Transport (IWT). Finally, this note recommends reform options. They focus mainly on institutional and policy improvements, and on providing an effective management and operational framework to create a fully functioning and effective water transport system.

2 River Transport System Key Findings Myanmar has an extensive river network that is well positioned to serve the country’s main transport corridors, including the link between Yangon and Mandalay. However, navigation is difficult along the main rivers because of shallow waters during the dry season, shifting navigation channels, and lack of terminal facilities. Several factors strongly constrain river transport efficiency. Navigation conditions constrain the use of most vessels (except the smaller ones) to about 70% of the year on the segment between Yangon and Mandalay, and the lack of a defined channel limit operational speed. The absence of port facilities (i.e., there is only beach landing with planks) makes loading and unloading operations very slow, and creates long waiting times in port. As a result, river transport in Myanmar has low-cost, but not to the level observed in other countries, where it is by far the cheapest transport mode. The absence of port facilities and limited navigation opportunities lead to a low vessel utilization, and prevent the use of large vessels handicapped. The market share of river transport is now only 6% for inland long-distance freight and only 1.5% for passenger transport. The rapid decline of Inland Water Transport (IWT) in the last 5 years has been compensated by an equal rise in private sector operators for freight, but not for passengers. However, even for freight, river transport has not emerged as a preferred option for any market, and is absent from bulk markets (e.g., sand, stone, ore), where it should hold a comparative advantage.

2.1 Inland Waterway Network River Systems Myanmar has an extensive network of rivers (Table 1 and Annex 1). Five relatively large rivers—Ayeyarwaddy, Chindwin, Thanlwin, Sittaung, and Kaladan—dissect the country and are easily accessible to a large part of the population of some 60 million. Some 6,650 km of these rivers are navigable. The primary network is made up of the Ayeyarwaddy and Chindwin rivers and a network of streams and canals in the Ayeyarwaddy Delta. The Ayeyarwaddy is the spine of the system. It is navigable year round up to Bhamo, and up to Myitkyina during the dry season. During the wet season, rapids on the stretch of the channel between Bhamo, and Myitkyina render navigation hazardous. The Chindwin is navigable for some 730 km from its confluence with the Ayeyarwaddy. Many streams of the Ayeyarwaddy Delta are navigable and are interconnected by a web of canals. The Sittaung and the Thanlwin are used to a lesser extent for commercial navigation due to physical constraints. The Sittaung experiences heavy siltation, while rapids are prevalent on the Thanlwin. Small steamers and country boats also serve the coasts of the Rakhine and Tenasserim regions.

4

River Transport System5

Table 1: Extent of Navigable Rivers (km) Navigable Waterways

Length (km)

Ayeyarwaddy River

1,534

Chindwin River

730

Thanlwin River and rivers in Mon State

380

Rivers in Ayeyarwaddy Delta

2,404

Rivers in Rakhine State

1,602

Total

6,650

km = kilometer. Source: Directorate of Water Resources and Improvement of River Systems.

Past studies have pointed to obstacles to improving the utilization of the channels. In particular, the 1993 Comprehensive Transport Study financed by UNDP and managed by the World Bank highlighted the following, which are still relevant in varying degrees.3

Navigation Channels For many years, the rivers, a major mode of transportation, have essentially been used in their natural state. Development of navigation channels has been sporadic at best and mainly a response to heavy sedimentation and riverbank protection. Navigation channels are not well defined and sufficiently marked. Nautical charts providing crucial information for safe navigation are not available. Transport service providers using the rivers are left to fend for themselves as best as they can when navigating. Geography and climate cause instability of river flows. Myanmar, with an area of about 676,000 km2, is bordered by a series of mountains and the sea. It is bordered by mountains that are an extension of the Himalayas in the west, and by a continuation of the Yunnan Plateau in the east. The two mountain systems join in the north with elevations as high as 5,000 m. Between the mountain ranges and the sea are alluvial lowlands dissected by the five large rivers. Most of the lowland area is less than 100 m in elevation, but the elevation in the far north may be as high as 1,500 m. Myanmar extends about 2,000 km north to south, and its eastern and western extremities are about 700 km apart. The topography and the wide expanse of land result in significant variations in climatic conditions, rainfall regime in particular (Table 2). There are three distinct seasons: hot season during February–April, wet monsoon season during May– October, and dry and cold season during November–January. Annual average rainfall is 750 mm in the center

Table 2: Monthly Rainfall (mm) City

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Yangon

5

2

7

15

303

547

559

602

368

206

60

7

Mandalay

4

3

1

40

138

116

83

136

150

125

38

6

National average

3

0

16

14

151

110

77

99

127

152

25

2

mm = millimeter. Source: Haskoning. 1988. Irrawaddy and Lower Chindwin Rivers Study. Yangon.

3

UNDP. 1993. Myanmar Comprehensive Transport Study. Yangon.


of the lowlands, 1,500 mm in the eastern and western hilly areas, and 4,000–5,000 mm in the coastal belt. About 90% of rainfall occurs during May–October, peaking during July–September. The central lowland is considerably drier than the rest. Consequently, the water level of all rivers rises in May and June, peaking in September and October. Changes in water level in the Ayeyarwaddy Delta due to the influence of tides can complicate but is less disruptive of navigation, and vessels unable to sail due to insufficient depth may still have to wait for the water to rise.

Figure 1: Sedimentation Examples for Magway and Monywa Magway

Monywa Similar evidences of sedimentation can be found in many places on the Ayeyarwady

Source: Image 2016 DigitalGlobe, CNES - Astrium accessed through Google Earth.


The volume and intensity of water discharge has other physical effects. In particular, sedimentation is severe and rivers change course frequently. Sedimentation reduces the depth (free flow) of water and, in tandem with changes in the course of flow, destabilizes the channel. The severity of sedimentation is evident; in many places, accumulation of sand on the rivers is visible. The causes of river instability cannot be eliminated; they can only be mitigated. To ensure that vessels can navigate safely, the minimum water level at the channels have to be established and maintained. Data available from the Comprehensive Transport Study show the following least available depth of the Ayeyarwaddy and Chindwin (Table 3). Since the water level varies, appropriate depth restrictions applicable to navigation are established for various sections. Current restrictions on the draft of vessels are in Table 4.

Table 3: Least Available Depth of the Ayeyarwaddy and Lower Chindwin Rivers (m) Draught Limitation for Duration in Days Stretch

1

20

30

60

90

120

150

180

1. Yangon–Pyay

2.10

2.30

2.40

2.55

3.30

4.50

5.70

6.90

2. Pyay–Magway

1.05

1.20

1.30

1.50

2.05

2.85

3.70

4.50

3. Magway–Confluence

0.95

1.10

1.20

1.35

1.85

2.65

3.45

4.20

4. Confluence–Mandalay

0.95

1.25

1.35

1.50

2.10

2.95

3.85

4.75

5. Mandalay–Bhamo

0.75

0.95

1.10

1.25

1.80

2.65

3.50

4.40

6. Confluence–Monywa

0.75

0.90

0.95

1.10

1.45

2.05

2.70

3.35

7. Monywa–Mawlaik

0.75

0.90

1.00

1.15

1.50

2.05

2.70

3.45

1.40

1.90

2.20

2.65

2.95

3.30

3.60

3.80

Ayeyarwaddy

Chindwin

Ayeyarwaddy Delta 8. Ayeyarwaddy Delta

m = meter. Source: United Nations Development Programme. 1991. Comprehensive Transport Study. Yangon.

Table 4: Draft Restrictions by River Stretch River Sections

Depth (m)

Distance (km)

Ayeyarwaddy

Myitkyina–Sinbo

Bhamo–Katha

Katha–Mandalay

Mandalay–Pyay

Pyay–Hinthada

Delta

0.8 1.1 1.2 1.5 1.7 1.9

90 130 290 522 172 n/a

Chindwin

Hkamti–Homalin

Homalin–Kalewa

Kalewa–Monywa

Monywa–Confluence

0.8 0.9 1.0 0.9

62 64 234 85

km = kilometer, m = meter, n/a = not applicable. Source: Directorate of Water Resources and Improvement of River Systems.


The lowest depth available determines the size of the vessel that can use the channel. Based on the minimum depth available, the largest that can operate all year round on the Ayeyarwaddy is a 300-ton vessel.

Navigation For safety reasons, navigation is confined to daylight hours. Water level is down during the dry season, and the channels are not well defined. Navigation channels are unstable due to the shallow water and the migration of sandbanks. Extensive knowledge of the waters is required to navigate the channel safely; as a rule, a pilot who knows the waters intimately should operate in restricted waters. A journey from Yangon to Mandalay will, in all cases, rely on several pilots for different sections of the river. Careful adherence to channel markers and warning signs is necessary. However, the shortage of funds has prevented the installation of proper markers and signs as well as system maintenance. To some extent, the difficulty in maintaining a proper navigational aid system is due to the frequent changes in the course of the river and the frequent relocation of markers and signs. As a result, many markers have remained traditional, in many instances consisting of bamboo poles sticking out of the water. Navigational aids have also been supplemented by signs placed by local pilots. Maps to mark out the routes are not available. Similarly, no navigation bulletins are issued regarding changes in river conditions or warnings about dredging and river training works and other navigational hazards. A major issue is the lack of resources for river improvements. The annual capital expenditures on the waterways have been less than $2 million a year, most of which has gone for riverbank protection (Figure 2).

Figure 2: Annual Spending on River Infrastructure ($ million) 3.0 2.5 2.0 1.5 1.0 0.5

FY 20 04 FY 20 05 FY 20 06 FY 20 07 FY 20 08 FY 20 09 FY 20 10 FY 20 11 FY 20 12 FY 20 13

0.0

Channel improvement

Bank protection

Dredging

Source: Directorate of Water Resources and Improvement of River Systems.

Snag removal


2.2. River Ports There are more than 50 designated ports along the Ayeyarwaddy, the Chindwin, and the Ayeyarwaddy Delta. River ports are often little more than landing beaches. Areas for mooring of vessels are not defined. Approach channels are not provided. The inadequacy of navigation infrastructure is accompanied by a lack of facilities for the handling of passengers and cargo at terminals. The main river ports are Yangon (0.7–1.0 million tons just for river transport annually), and Mandalay (0.5–0.6 million tons annually). Insufficient data are available to determine the volumes of traffic at other ports. Except for these two large ports, IWT mainly operates in the upper Ayeyarwaddy—Bhamo (70,000 tons in 2012– 2013), Katha (about 32,000 tons), and Ayeyarwaddy Delta (Pathein, Pyapon, Myaungmya, all generating about 20,000 tons of annual turnover for IWT). The private sector accounts for about 85% of traffic in Mandalay, but this is expected to vary much from port to port.4 Changes in water level make the construction of port facilities difficult and prohibitive. The water level on the rivers rises and falls as much as 11 m in some places, but this variation is magnified in the dry season, which lasts for three months (Table 5). The river network is characterized by a water regime that is highly seasonal. During the dry season, the water line recedes and a wide expanse of the riverbed is exposed.

Table 5: Annual Changes in Water Level

River Ayeyarwaddy

Chindwin

Location (km)

Water Level Variation (m)

Bhamo

1,332

8.27

Katha

1,202

9.09

Thabeikkyin

Gauge Station

1,032

11.50

Mandalay

912

7.95

Sagaing

897

9.28

Nyaung Oo

721

9.76

Chauk

674

10.79

Nyaung Hla

606

10.66

Minbu

576

12.80

Aunglan

461

13.03

Pyay

390

11.62

Hinthada

218

10.94

Mawlaik

383

12.56

Kalewa

319

15.15

Monywa

87

8.73

km = kilometer, m = meter. Source: Directorate of Water Resources and Improvement of River Systems. 4

In 1991, the following ports generated more than 100,000 tons of annual traffic: Yangon (825,000 tons), Mandalay (292,000 tons), Kyangin (189,000 tons, a cement factory), Pakokku (167,000 tons), and Pathein (131,000 tons). Other ports with 50,000–100,000 tons throughput included Bogalay, Monywa, Kyawzwa (fertilizer factory), Thayet (cement factory), Myaungmya, Chauk, Hinthada, Kyaiklat, Mawlamyine, and Labutta. Source: UNDP. 1991. Comprehensive Transport Study. Yangon.


Construction of a jetty requires a site some distance away from the shoreline where there is sufficient depth most of the time to ensure that the jetty is useable throughout the year. Apart from a few jetties at Yangon, there are no proper facilities available for the handling of cargo and passengers. Access from land to vessel is generally via a gangplank. In the absence of a platform upon which equipment can be positioned to load and unload cargo, mechanical handling of cargo hardly exists. Consignees experience long delays in the loading and unloading of cargo.

Yangon Port Yangon Port is a river port, but mostly operating for seaborne cargo. It handles about 90% of Myanmar cargo by volume. The Yangon main port is located 32 km from the mouth of the Yangon River. It includes six main terminals and is connected to the Ayeyarwaddy River through the 35 km long Twante Canal. Further downstream is the Thilawa Area Port, located 16 km from the mouth of the Yangon River. River and coastal shipping operations occur at 35 jetties owned by Myanma Port Authority (MPA) and operated by private operators (20), IWT (9), and MPA (6). These jetties are permanent but not mechanized, contrary to the nearby sea terminals.

Mandalay Port Mandalay has small floating jetties for passengers and no handling facilities. Vessels and barges are anchored along the riverbank and unloaded through gangplanks. Freight is then placed on the riverside. Small trucks move goods on the beach to larger trucks waiting nearby. The entire riverside of Mandalay—about 6 km—are used for port operations. Loading and unloading at the Mandalay Port have essentially remained unchanged since the 1880s (Figure 3).

Figure 3: Typical Loading and Unloading Operations at Mandalay Port



Manual loading or unloading limits the size of the vessels that can be used, since larger ones take longer to service. It also means that a very long beachfront is required—several kilometers in the case of Mandalay.

2.3 River Transport Services River Fleet As of 2014, some 4,590 vessels are registered with the Department of Marine Administration (DMA) for inland water operations. The fleet has a load carriage capacity of about 93,400 passengers and 68,600 tons of cargo. The fleet has been increasing steadily over the years although the ownership structure has changed significantly. Private ownership of vessels increased from 1,760 vessels of various sizes in 1991 to 4,131 in 2014, while IWT’s fleet has seen a marginal decrease of 495 vessels to 429. In 2013, there were 3,638 self-propelled vessels with more than 20 horsepower, of which 987 were registered for passenger operations and 2,651 for freight operations. With the exception of cross-river ferries, most passenger vessels were also used for carrying freight (passenger-cum-cargo vessels). It was estimated that about 60% of the freight reaching Mandalay was carried through barges (mainly private), and 24% by private passenger-cum-cargo vessels, and 16% by IWT passenger-cum-cargo vessels. Smaller vessels and dumb barges are registered at the local level. They numbered about 38,000 in 2013. Most vessels in use are small and low-cost. They are typically made of wood, with the exception of IWT’s vessels, of which many are made of steel. Table 6 summarizes the costs and types of vessels in use. Figure 4 and Figure 5 show typical vessels. Utilization rates are strikingly low at less than 20,000 km a year.

Table 6: River Vessel Cost Data—2013 Survey

Vessel Barge

Capacity (ton/ passengers)

Purchase Price ($)

Fuel Consumption (l/km)

Utilization (km/year)

Crew Number

90

18,000

2.3

18,300

1.6

100

15,000 25,000

1.6 n/a

9,700 n/a

2.8 n/a

Passenger-cum-cargo vessel

150

24,500

1.8

17,600

3.4

Passenger boat

50 200

4,200 55,900

1.1 n/a

13,900 13,900

1 2.7

Regular cargo vessel

km = kilometer, l/km = liter per kilometer, n/a = not available. Source: Asian Development Bank estimates based on Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.


Figure 4: Passenger-cum-Cargo Vessel

This passenger-cum-cargo vessel is of a type commonly seen in Myanmar. Manual loading and unloading is the norm at Mandalay port, where the picture was taken in 2014. Source: Asian Development Bank.

Figure 5: Freight Barge

This freight barge is of a type commonly seen in Myanmar. Unloading operations are labor intensive. The barges in the back can be accessed through the one closest to the beach. Source: Asian Development Bank.


Services The public carrier IWT and private operators service the river’s various markets: ƷɆ

ƷɆ

ƷɆ

Transport in the Ayeyarwaddy Delta, which runs all year round, is often shorter than trips by road when there is connectivity and a good integration between long-distance and short-distance river transport. Transport on the Ayeyarwaddy itself up to Mandalay, subdivided between the section from the Delta area to Pakokku, which is navigable 80%–90% of the year for any kind of vessel, and between Pakokku and Mandalay, which is only navigable 70% of the year because of the sandbanks. Transport on the upper reaches of the Ayeyarwaddy is up to Katha and Bhamo, and transport on the Chindwin up to Monywa and Kalewa, where small vessels provide essential services during the wet season.

IWT, which used to account for most of the river transport market, has all but stopped its long-distance passenger transport services after 2012. The average fare charged by private carriers was $1.2 cents per ton/ km (waterway distance usually differs from road or rail distance) for an average speed of 15 km per hour. In the ranges of the Ayeyarwaddy north of Pakokku, services are restricted and often take longer during the dry season. IWT’s revenues were on average $1.1 per passenger/km, but this included both long-distance and short-distance passengers (river crossings).

Table 7: Average Long-Distance River Passenger Fares as of 2014 River Distance (km)

Fare ($)

Time (h)

Fare ($/km)

Speed (km/h)

Yangon–Pathein

275

2.5

12.0

0.91

22.9

Yangon–Myaungmya

216

2.3

14.2

1.06

15.2

Yangon–Labutta

274

3.0

14.2

1.09

19.3

Yangon–Maubin

72

0.9

5.0

1.25

14.4

Yangon–Pyapon

85

1.6

10.0

1.88

8.5

Mandalay–Bhamo

420

3.9

40.0

0.93

10.5

Mandalay–Pakokku

164

1.5

11.4

0.91

14.3

Mandalay–Katha

290

2.0

40.0

0.69

7.2

Mandalay–Bagan

191

2.5

15.0

1.31

12.7

Monywa–Kale

234

6.1

13.8

2.61

16.9

Pakokku–Magway

176

1.3

6.6

0.74

26.6

1.22

15.3

Transport

Average

h = hour, km = kilometer. Source: Asian Development Bank estimates based on Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.


River transport is not a dominant transport mode on any corridors. For long-distance travel, river transport is only significant for ƷɆ ƷɆ

passenger transport within the Ayeyarwaddy Delta, between the delta and Yangon, and between Mandalay and Bhamo in the upper Ayeyarwaddy where road connections are poor; and freight transport mainly between Yangon and Mandalay (76% of long-distance river transport), and to a lesser extent between Yangon and the Ayeyarwaddy Delta (11%), the upper Ayeyarwaddy (9%), and the Chindwin (4%).

Private operators handle almost exclusively cargo rather than passengers, but about a third of their vessels are passenger-cum-cargo, enabling occasional passenger transport. At the Mandalay Port, it is estimated that private operators account for 85% of cargo transport, and IWT, 15%.5

2.4 River Transport Markets Long-Distance Transport In 1990, the Comprehensive Transport Study estimated that long-distance river transport (more than 100 km) moved 1.3 million people and 2.6 million tons of goods. In 2013, a national transport survey found that 1.5 million people and 3.9 million tons was moved on the waterways (Table 8 and Table 9). During the 23 years in between studies, river transport of passengers grew by 15% and freight by 45%. The total transport market also increased by 200% for passengers and 550% for freight. The market share of long-distance river transport has fallen from 3.5% to 1.5% for passengers and from 22% to 3.5% for freight (6% if excluding coastal shipping).

Table 8: Passenger Transport Volumes by Distance (million passengers/year) Length of Trip (km) Total


Total Billion Pass-km

0.0

26.1

25%

6.4

17%

2.2

1.5

60.7

58%

24.4

67%

0.5

0.0

11.0

11%

4.2

11%

0.2

0.0

3.5

3%

0.6

2%

0.5

0.4

0.2

2.6

2%

1.0

3%

13.0

3.3

1.6

103.8

100%

36.6

100%

Transport

100– 200

200– 400

400– 600

600– 800

800– 1,000

1,000– 1,200

Car

15.0

7.4

1.9

1.8

0.0

Bus

17.3

18.1

12.5

9.1

Rail

3.5

4.0

1.8

1.1

River

0.4

0.6

1.1

0.4

Air

0.0

0.0

1.5

36.1

31.0

18.7

Total

Modal Share by Pass-km

km = kilometer, Pass km = passenger kilometers. Note: Totals may not add up due to rounding. Source: Asian Development Bank estimates based on Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

5

M. Nakanishi, T. Muroi, and K. Kishida. 2014. Mandalay Port Development Project in Myanmar. Paper presented for the 33rd PIANC World Congress. San Francisco. 1–5 June.


Table 9: Freight Transport Volumes by Distance (million tons/year) Length of Trip (km) Transport Truck

100– 200

200– 400

400– 600

600– 800

14.8

15.5

14.6

14.1

800– 1,000 1.0

1,000– 1,200 1.1

Total


Total Billion Ton-km

Modal Share by Ton-km

61.1

89%

25.8

88%

Rail

0.7

0.7

0.7

1.5

0.0

0.0

3.7

5%

1.7

6%

River

0.9

0.5

1.1

1.3

0.0

0.0

3.9

6%

1.8

6%

Total

16.4

16.8

16.4

16.8

1.1

1.1

68.6

100%

29.3

100%

km = kilometer. Note: Totals may not add up due to rounding. Source: Asian Development Bank estimates based on Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

Freight Markets As indicated in Table 10, river transport freight mainly comprises liquids (31.6%), construction materials (14.8%), food (13.8%), grain (12.8%), and household items (12.8%). By international comparisons, Myanmar’s river transport market for coal, metal, chemicals, ore, sand, or wood is small. Most of the goods transported are general cargo, e.g., those carried in bags, boxes, drums, and barrels, with few transported in bulk and none in containers. River transport does not hold a dominant market share on any segment. Its highest share is for the transport of liquids (petroleum, oil, and gas), where it reaches 15% (Table 11). River transport’s main customer base consists of commodity items that are essentially related to the farming community (foodstuffs and grain products, animal feed, fertilizer) and bulk cargo (oil, cement, sand, construction materials, and wood products). The affinity to the agricultural sector may be explained by the proximity of farms to the rivers, and hence better connectivity and access to the vessels. Despite the inherent advantage in the transport of bulk cargo by river transport, substantial quantities of bulk cargo are carried by road. It would appear that river transport is not able to compete with road transport, even though river transport has inherent cost advantages over road transport.

Table 10: Composition of River Transport Freight (thousand ton/day) Commodity Cement, construction material Coal, ore Fertilizer Foodstuff, beverage, animal feed Grain and agricultural products Household items, appliances Machinery and parts Petroleum, oil, and gas Others

Volume

%

547 73 37 511 475 474 73 1,168 342

14.8 2.0 1.0 13.8 12.8 12.8 2.0 31.6 9.2



Table 11: Freight Volumes by Mode and Commodity (thousand ton/day) Commodity

Truck

River

Railway

Coastal

Live animal & animal products

1.6

0.0

0.0

0.0

1.6

Fish and aquatic products

2.6

0.0

0.0

0.0

2.7

Vegetable and fruits

6.0

0.0

0.0

0.0

6.0

Grain and grain products

31.9

0.7

0.4

1.3

34.3

Other agricultural products

(e.g., plantation product)

14.2

0.6

0.1

0.0

15.0

Foodstuff, beverage, and animal food

17.6

1.4

2.5

4.1

25.6

Petroleum, oil, and gas

4.8

3.2

0.3

13.4

21.8

Coal, ore, stone, and sand

7.9

0.2

0.3

0.0

8.4

Cement, construction material

(including steel frame)

22.7

1.5

2.7

1.2

28.0

Fertilizer (including urea)

14.0

0.1

0.1

0.0

14.2

Garment, textiles, and fabric

3.3

0.1

0.0

0.0

3.5

Wood and wood products

3.6

0.5

1.7

0.0

5.8

Paper and printed matter

1.4

0.0

0.1

0.0

1.5

Metal and metal products

(excluding construction material)

1.9

0.1

0.3

0.0

2.3

Industrial material, chemicals

6.5

0.1

0.5

0.3

7.4

20.3

1.3

0.6

0.3

22.5

8.1

0.2

0.1

0.0

8.4

Total

168.4

10.2

9.6

20.6

208.9

Share

81%

5%

5%

10%

100%

Household articles, miscellaneous Machinery and parts, transportation

Total

Note: Percentage does not total 100% because of rounding. Source: Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

Local Passenger Transport Currently, some 13–15 million passengers depend on river transport. Of these, some 12 million cross the river using ferries, mainly in the Yangon urban area (most passengers commute to and from Dalla on the opposite side of Yangon on the Yangon River). Long-distance river transport is slow, and getting on and off vessels is difficult due to the lack of proper passenger handling facilities. Passenger services have been on the decline, as more roads and bridges are constructed. The decline of the river passenger market has been accelerated after 2009 by the downfall of IWT, which used to lead this market (Figure 6 and Figure 7).


Figure 6: Inland Water Transport LongDistance Passengers (1,000 passengers/year)

FY 20 10 FY 20 11 FY 20 12 FY 20 13

FY 20 09

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0

FY = fiscal year. Source: Inland Water Transport.

Figure 7: Inland Water Transport Ferry Passengers (1,000 passengers/year) 25,000 20,000 15,000 10,000 5,000


FY 20 13

FY 20 12

FY 20 11

FY 20 10

FY 20 09

0

3 Restoring a Functioning River Transport Sector

Key Findings and Suggestions Small investments are sufficient to enable the development of river transport in Myanmar. Efforts should concentrate on two objectives: ƷɆ Improving the Ayeyarwaddy River Channel and the navigation conditions between Yangon and Mandalay. A minimum navigation depth of 1.5 m should be targeted. Channelization through river training, dredging, and bank stabilization should be followed by scale-up efforts by the Directorate of Water Resources and Improvement of River Systems (DWIR) to maintain the channel and publicize its location. Modern navigation aids should be provided for direct and short navigation in the long run. ƷɆ Developing basic river port terminals, gradually enabling mechanized operations. The slow turnover of riverside operations raises costs and constrains the use of large vessels. Because of the nature of the river, mechanization can only be gradually introduced. Low-cost options for river ports, such as floating docks, should be installed before considering more costly permanent structures. These improvements have the potential to reduce Myanmar’s river transport costs by up to 65% in the long run. They have a limited cost—about $200 million—and the benefits may be up to seven times higher. By the end of this program, river transport could become the preferred transport alternative for low-value freight between Yangon and Mandalay.

River transport in Myanmar is relatively underdeveloped. Despite its wide network of rivers, only 6,650 km is used for navigation and only 5% of the total volume of cargo is moved by river transport. By comparison, the People’s Republic of China’s inland waterway systems account for 16% of the total freight moving in the country. In Viet Nam, which has some 6,000 km of waters (about 30% is navigable), inland water transport accounts for 45% of 20 million tons of freight. There is room to expand the use of river transport in Myanmar. The river systems have an outreach to a great part of the country. More than 70% of the population has access to a river which provides a right of way at minimum cost. Development of the country’s rivers for commercial navigation is a viable option. The overriding objective is to have a river transport system with the capacity to carry as much traffic as possible at a competitive price in relation to other transport modes. This can be achieved by ensuring that the capacity of the existing networks is utilized fully by ƷɆ ƷɆ ƷɆ

18

removing and overcoming physical constraints to navigation, providing proper terminal facilities at river ports, and replacing old and obsolete vessels with a tug and barge operation.

Restoring a Functioning River Transport Sector 19

Operational improvements can include the following: ƷɆ ƷɆ ƷɆ

increase channel depth to enable the use of vessels with deeper draughts throughout the year; facilitate navigation to enable higher vessel speeds and navigable hours (such as night navigation), raising vessel throughput and utilization; and improve river port efficiency to enable faster throughput of cargoes, again raising vessel utilization.

3.1 Options for Navigation Improvements Requirements for Navigation Improvements DWIR has been unable to guarantee a minimum level of navigation conditions on the waterways. DWIR spends much effort to survey, mark, and dredge critical points, but the natural condition of the river means that from one day to another the location of the thalweg can shift. This makes river travel slow, as the vessel risks being stranded on a river sandbank; it happens often on the Ayeyarwaddy. As a rule, the larger the vessel, the lower the unit cost of freight. However, the application of this principle is contingent on the availability of cargo. If the vessel has to wait for cargo to be fully loaded, the higher turnaround time at port nullifies the cost savings that can be achieved through carrying a bigger load. There is a fine balance between the size of payload and the frequency of sailing, and the aim of a shipping company is to provide frequent service demanded by the client. Given the present state of development in the country, it is unlikely that shipments exceeding 300 tons per trip can be assembled at one time. So there is little merit in having a vessel that carries more than 300 tons. In the medium term, vessels up to 500 tons may eventually cruise up to Mandalay. The capacity of the channel is a function of the size of the load and the travel frequency of the payload. The frequency of shipments is dependent on the speed of travel and the turnaround time at terminal. Turnaround time at terminal is determined by the rate of loading and unloading and, in the case of a passenger vessel, by the rate of passenger embarkation and disembarkation. Assuming that each payload is 300 tons, the vessel travels at 6 knots, and sailing is possible throughout the day, the river systems are capable of handling some 250 million tons a year. The volume of freight on the river systems is currently about 3.7 million tons and can increase to about 20 million tons by 2030. The present network has the capacity to absorb all expected demand for river transport provided that the channels are maintained for all day sailing year round and terminal facilities exist for the proper loading and unloading of cargo and embarkation and disembarkation of passengers.

River Classifications and Objectives The current minimum levels of water on the main river sections are only just below what is needed to enable navigation for 300- to 500-ton ships throughout the year. Taking the People’s Republic of China’s (PRC’s) standard river classification (Table 12 and Table 13) as a base, DWIR would have to ensure ƷɆ ƷɆ ƷɆ

a minimum level of water of 1.3–1.6 meters to enable 300-ton ships, a minimum level of water of 1.6–1.9 meters to enable 500-ton ships, and a minimum level of water of 2.0–2.4 meters to enable 1,000-ton ships.


Table 12: People’s Republic of China’s National Standard of Inland Waterway Classification

I

II

III

IV

V

VI

VII

Vessel tonnage (dwt)

3,000

2,000

1,000

500

300

100

50

Water depth (m)

3.5–4.0

2.6–3.0

2.0–2.4

1.6–1.9

1.3–1.6

1.0–1.2

0.7–0.9

dwt = deadweight ton, m = meter. Source: People’s Republic of China’s National Standard of Inland Waterway.

Table 13: River Network Navigability Conditions 95% of Year (20 days low water)

Conditions 85% of Year (60 days low water)

Minimum depth (m)

PRC standard / vessel ton

Minimum Depth (m)

Eq. PRC standard / vessel ton

600 km (network)

1.90

IV / 500

2.65

II / 2,000

Yangon–Pyay

390

2.30

III / 1,000

2.55

II / 2,000

10–11

Pyay–Confluence (Pakokku)

358

1.10

VI / 100

1.35

V / 300

12–13

Confluence–Mandalay

164

1.25

VI / 100

1.50

V / 300

8–10

Mandalay–Bhamo

420

0.95

VII / 50

1.25

VI / 100

8–11

Confluence–Mawlaik (Chindwin)

383

0.90

VII / 50

1.10

VI / 100

9–15

Segment Delta

Distance (km)

Annual Variations (m)

km = kilometer, m = meter, PRC = People’s Republic of China. Sources: Minimum depth data are obtained from the Comprehensive Transport Study. Asian Development Bank computations of navigability are based on PRC’s National Standard of Inland Waterway.

Currently, DWIR can guarantee the circulation to Mandalay of 100-ton vessels all year round, and 300-ton vessels up to 85% of the time. To enable 500-ton vessels up to Mandalay, a minimum depth of 1.3–1.6 meters would be required. The 1991 Comprehensive Transport Study found that through low-cost least available depth (LAD) improvements, a minimum depth of up to 2.1 meters could be achieved up to Mandalay. Improvements of the stretch between Bhamo and Mandalay were prohibitively expensive, while the lower Chindwin could be marginally improved only up to 1.2 meters. The situation is unlikely to have changed significantly in the last 20 years. Based on this review, it is proposed that DWIR should standardize the stretches of the river system into three categories, linking navigability to draught limitation (and channel characteristics): ƷɆ ƷɆ ƷɆ ƷɆ

Class 1 waterways for vessels up to 1,000 tons—draught limitation of 2 meters Class 2 waterways for vessels up to 300 tons—draught limitation of 1.5 meters Class 3 waterways for vessels up to 100 tons—draught limitation of 1 meter Unclassified—below 1 meter

Table 14 illustrates possible objectives based on the above classification.


Table 14: Possible Channel Depth Objectives Current Situation

Medium-Term Objective

Long-Term Objective

Minimum depth (m)

Class

Minimum depth (m)

Class

Minimum depth (m)

Class

Delta

1.90

2

1.90

2

2.10

1

Yangon-Pyay

2.30

1

2.30

1

2.30

1

Pyay-Confluence (Pakkoku)

1.10

3

1.50

2

2.10

1

Confluence-Mandalay

1.25

3

1.50

2

2.10

1

Mandalay-Bhamo

0.95

U

0.95

U

1.00

3

Confluence-Mawlaik (Chindwin)

0.90

U

0.90

U

1.20

3

Segment

m = meter, U = unclassified. Note: Minimum depth here refers to 95% of the year, not year-round minimum depth, which can be 15–30 centimeters lower. Source: Asian Development Bank estimates.

Channelization The preferred way to make small-scale LAD improvements is through river channelization. By fixing the thalweg in one location through dredging, using riverbank training structures (i.e., groins), and stabilizing banks, the main flow of the water becomes concentrated and maintains an increased depth through natural erosion. DWIR has identified 35 critical points requiring improvements on the Ayeyarwaddy, and 13 on the Chindwin. According to a 1988 Irrawaddy and Lower Chindwin Rivers study, there may be up to 46 spots that constrain navigation on the Ayeyarwaddy and 37 spots on the Chindwin. In 2014, the World Bank, in partnership with the government of the Netherlands, initiated a program to model sedimentation, and design and implement river channel improvement works between Nyaung Oo and Mandalay.6 Informal discussions with the design team at an early stage indicated that a 1.8 m LAD may be considered in that section. Altogether, a program of LAD improvements for the Ayeyarwaddy is estimated by DWIR to cost about $110 million, of which the World Bank project will finance about $30 million, leaving $80 million unfinanced. Once the channel is improved, DWIR would then need to maintain the standards assiduously. This will require higher resources than currently available to DWIR. DWIR would also need to widely publicize the standards so that new entrants to the sector know what vessels to deploy in their area of interest. Inconsistency in the standard of navigation channels is a deterrent to entry of new river transport operators. Physical measures to improve navigational conditions can be supplemented by nautical maps and a shipping advisory service. If properly maintained, a system based on these standards will have the capacity to meet all foreseeable demand for years to come.

Water Level Regulation Works DWIR and the Ministry of Transport and Communications (MOTC) have also been considering larger-scale improvements that would allow the use of vessels with deeper draught. MOTC has prepared a plan to improve

6

World Bank. 2014. Myanmar – Ayeyarwady Integrated River Basin Management Project. Washington, DC.


river navigation on the Ayeyarwaddy, involving the construction of 12 weirs between Myitkyina and Hinthada. The cost for such a development is prohibitive—at least $500 million for each weir—and since the width of the Ayeyarwaddy ordinarily is more than 1 km including floodplains, this may be a large underestimate. The development of the whole system would take years; and because the benefit of shipping using larger vessels over a network accrues only when the whole system is completed, it would be a long time before the development bears fruit. From a financial point of view, the plan to construct a series of weirs to increase water depth is rational only if it is taken with the purpose of generating power. However, power generation would remain limited because of the low slope (the height difference between Myitkina and Hinthada is only 130 m, while the distance between them is 1,200 km). Upstream dams would certainly bring much more power per unit of investment. Each development would have negative environmental impacts, and even more if cumulated. Finally, the transport traffic does not warrant such capital development. At present, there is no need to increase the system capacity by deepening and widening the channels to accommodate bigger vessels.

Navigation Aids As noted above, the channel from Yangon to Mandalay and beyond is marked by only the most basic of markers, consisting of a bamboo stake with a colored cloth on the top to indicate right and left hand channel limits. The markers are not fixed and are flushed away in high volume flow. No permanent mid-channel targets are provided. Because the river changes course often, permanent markers are not useful. Once the channel is improved, permanent channel targets and limits should be placed by river maintenance ships and be moved as the channel moves. In the long run, enabling night navigation could double the time available for travel. This would require the following: ƷɆ ƷɆ ƷɆ ƷɆ

installation of lighted buoys, gradually increasing their density (the Comprehensive Transport Study indicates the need for one buoy per kilometer); regular updating of maps and provision of bulletins; preparation of regulations; and training and certification of pilots and crew.

This can only be achieved in the long run through an incremental approach where the stretches are lighted, and the density of the buoys and the number of certified pilots are increased over time. The risk of losing buoys through pilferage needs to be mitigated. For example, the Red River in Viet Nam has 24-hour navigation capability from Ha Long Bay to Ha Noi through solar-powered, lighted buoys. DWIR has a navigation aids plan for all sections of the river from Thilawa to Mandalay. The sustainability of those navigation aids will rely on annual river surveys of plan (channel) and cross section (draft) to identify the correct channel. The World Bank (under the same project) plans to provide navigation aids for the whole section of Yangon–Mandalay, with night navigation aids for the Mandalay up to Nyaung Oo. Modern technology in monitoring and managing the river system—such as depth sounding devices, automatic cross section profile development, modeling, annual river location monitoring, and dredging requirements identification—is unavailable due to lack of funds, even though costs would remain modest. The World Bank project plans to provide $3.4 million for navigation aids. This may cover only part of the total costs for channel marking and navigation aids, which have been estimated by DWIR to be between $10 million and $15 million.


Dredging Once a full annual survey of the cross sections of the river has been carried out, usually at 200 m intervals, the plan of the river and its channels and the main channel cross section can be used to develop a threedimensional picture of the complete river. Over that picture, a channel template can be laid that exactly locates the areas where dredging is needed and the full volume of dredged material that needs to be moved. This can then be used either for planning the dredging program of DWIR or as a basis for developing an annual dredging works plan for privately-contracted dredging companies operating on concessions. Dredging can either be for capital or maintenance purposes. Capital dredging will be used for large areas of heavy siltation or where the LAD is to be permanently deepened. For instance, if the current LAD is 1.2 m and needs to be 1.5 m, then the requirement for deepening a full stretch of the river would be classified as capital dredging. If the river is already at the specified LAD but seasonal siltation has encroached on that LAD, then the dredging would be for maintenance purposes. Dredged material has many uses. Existing riverside port areas can be upgraded significantly through the use of dredged material for staging areas and stable access to the river transport. As Myanmar’s economy is expected to grow up to 10% per year over the next 2 decades, significant construction will take place all over the country and, notably, in many areas that are near the river system. In those areas, dredged sand and gravel can be a reliable source of building materials and can be sold commercially. They can also be used to fill land near the river for industrial development or to reclaim low-lying land for industrial, commercial, or residential use. One option is to issue concessions for dredging to private companies that will pay for the right to use the dredged material commercially. As of 2014, DWIR has about 25 dredgers with a further 40 or so nonmotorized dredge barges. No other dredging vessels are available on the river system. Any use of commercial dredgers will then require either leasing of the DWIR vessels to the private sector or provision by DWIR of concessions that allow private companies to both import vessels and use the proceeds of the dredging operations. Commercial dredging concession is used by other countries to reduce the channel maintenance costs. DWIR could replicate this model. DWIR has estimated its dredging costs to be the following: ƷɆ ƷɆ ƷɆ

Channel annual maintenance dredging—approximately $5 million (concessions may reduce this total and turn dredging into a revenue source) Channel capital dredging—approximately $20 million Additional river training works—approximately $5 million

3.2. River Port Improvements Productivity Improvements Improving river port productivity can be done by the following: ƷɆ

Mechanization of ports. This includes the use of cranes, conveyor belts, and/or forklifts for palletized goods. This increases the productivity of loading and unloading, enabling vessels to spend


ƷɆ ƷɆ

less time docked, and thus increasing the throughput of both the vessel (which can do more cycles during the year) and the quay (which can serve more ships within the same time). It also reduces the labor cost of loading and unloading, however this cost is much smaller in Myanmar than the additional cost of equipment. Mechanization of vessels. This can incorporate cranes as long as the height difference between the vessel and the quay is not too large. Night port operation. This increases the time available for loading and unloading. This requires better lighting, which can only be provided over limited stretches.

Operational Challenges Proper port facilities are essential for efficient terminal operations. The basic facilities are a safe approach channel, a secure clearly defined area for working of vessels (jetties, storage areas, areas for staging cargo, warehousing, and other services), an anchorage, a turning basin, and a turning basin. All ports should be equipped with the basic cargo handling equipment of quayside cranes, forklift trucks, stackers, and mobile cranes. Cargo should be loaded and unloaded using quayside cranes and transferred from jetty to warehouse or open storage area using a tractor-trailer combination. Where cargo in bulk is handled, specialized cargo handling equipment and systems have to be provided. Two constraints exist in Myanmar: ƷɆ

ƷɆ

Mechanization through cranes is not possible for passenger-cum-cargo ships, which have a rooftop. This reduces the number of vessels that can benefit from port improvements. However, the number of such ships would be expected to reduce over 10 years if mechanized ports gave a competitive advantage to different barges. Changes in water level make the construction of fixed jetty or quay facilities prohibitive. The water level on the rivers rises and falls as much as 13 m in some places. Also, during the dry season, the waterline recedes, and a wide expanse of the riverbed is exposed. Large height differences between the vessel and the port can also lead to long cargo transfer cycles.

Figure 8: Mandalay Port Jetty Options

Source: M. Nakanishi, T. Muroi, and K. Kishida. 2014. Mandalay Port Development Project in Myanmar. Paper presented for the 33rd PIANC World Congress. San Francisco. 1–5 June.


Figure 9: Typical Cross Section of Floating Dock

Floating pontoon dock commonly used in Myanmar and in other countries. Source: United Nations Development Programme. 1991. Comprehensive Transport Study. Yangon.

Quays. Except in Yangon where a quay already exists, installing fixed quays would be prohibitively expensive. Stepped quays, however, were considered in the Comprehensive Transport Study. In Yangon, nothing prevents current vessels from using the quays, where a crane could be installed. Floating jetties. Construction of a jetty requires a site some distance away from the shoreline where there is sufficient depth all year to ensure that the jetty is useable throughout the year. This concept has been proposed for the port of Mandalay during the preparation of the transport master plan (Figure 8). It enables both manual and mechanized operations for $35 million–$40 million as estimated at feasibility stage. However, without mechanization, the benefits of the jetty above current facilities may be limited. Simple pontoons. River docks installed with high seasonal river level fluctuation are common in Myanmar as in other countries. (Figure 9). In Yangon, the pontoons are located approximately 80 m from the high waterline; but in port areas where the water variation is up to 12 m annually, extension docks will need to be installed as the water level drops and the initial pontoons become a base for access to the second dock in deeper water. Such simple pontoons could be designed to accept forklifts (Figure 10).

Figure 10: Floating Pontoon Dock and Access Bridges in Yangon

Pontoon dock in Yangon at the pier near Botahtaung Pagoda. This pontoon is the berth of a large seagoing vessel that has been converted to a floating hotel. The tidal range at the pontoon dock is 5.5 meters. Source: Photos by Greg Wood.


The Myanma Port Authority (MPA) fabrication company constructed the complex in Figure 10 including the pontoon dock, two 40 m access bridges, and two 50 m jetties from the parking area to the bridge for about $400,000. This design is modular. It can be expanded by adding more pontoons. The current dock is comprised of three 20 m pontoons chained together and is only 5 m wide. These can be installed along the river at various points; and the cost of fabrication, maintenance, and operation can be recovered from the users. Altogether, port operations productivity can be improved by ƷɆ ƷɆ ƷɆ ƷɆ

providing permanent structures at low cost, particularly if they enable forklifts; lighting them to enable night operations; encouraging the use of conveyor belts (possibly outside of designated port areas); and introducing crane operations in Yangon first, and then maybe in Mandalay.

3.3 Benefits The background analysis for this note includes modeling possible changes in costs that would arise from the following operational improvements: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

Increased productivity in port loading and unloading from 7.5 to 12 tons/hour/gang Reduced waiting time in ports from 24 hours to 18 hours Introduction of night navigation 50% of the time Channelization and increased navigability from 70%–75% to 100% for up to 500 ton vessels Increased availability of vessels from 80% to 90% (through fleet renewal)

The results are shown in Figure 12 and Figure 13. Under these assumptions, the cost of freight transport for any ship could be halved. Faster loading times would particularly benefit larger ships, which would become more competitive than smaller ones. Assuming that the shipping market also evolves and that larger vessels are preferred (500 and 1,000 tons), the cost of freight transport by river is estimated to reduce by 65%. This cost structure would make river transport a preferable option to road or rail for distances over 250 km for low-cost goods, and over 400 km for higher value commodities. The river would be the mode of choice for freight transport between Yangon and Mandalay, even factoring in the longer distance by river than by road. The benefit-cost ratio of these improvements would be high, at 11 for basic river improvements and 2.5 for port improvements.7

7

The parameters of the model are explained in the ADB. 2016. Myanmar Transport Sector Policy Note: How to Reduce Transport Costs. Manila.


Figure 11: Current Freight Transport Cost ($/100 km) 3.5 3.0 (km)

2.5 2.0 1.5 1.0 0.5 100

300 500 ($ per 100 km) 50t

125

500t

1000t

700

250t

km = kilometer, t = ton. Source: Asian Development Bank estimates.

Figure 12: Possible Freight Transport Cost ($/100 km) 3.5 3.0 (km)

2.5 2.0 1.5 1.0 0.5 100

300 500 ($ per 100 km) 50t

125

500t

1000t

km = kilometer, t = ton. Source: Asian Development Bank estimates.

700

250t

4 Organization of the Water Transport Sector

Key Findings and Suggestions The organizations involved in river transport management are all under the Ministry of Transport and Communications (MOTC), but they lack clear leadership. For far too long, river transport has been equated with Inland Water Transport (IWT). The government has dedicated very little funds to the maintenance and improvement of the inland waterway channels by the Directorate of Water Resources and Improvement of River Systems (DWIR). River ports lack a clear custodian since the Myanma Port Authority (MPA) is only in charge of seaports, and private sector regulation has been considered a side issue by the Department of Marine Administration (DMA), which also focuses on seagoing vessels. By 2015, the quick decline of IWT leaves a major gap in the sector, from which it may not recover. Institutional and policy improvements are necessary to develop river navigation in the long run. Restructuring the IWT, which is preferable to having it declare bankruptcy, is necessary and will require government support. ADB is providing technical assistance (TA) to MOTC to consider business restructuring strategy under the TA for Transport Sector Reform and Modernization. Since IWT can no longer be the main government agent in the sector, an alternative leader is needed. This report identifies the following as possible directions: ƷɆ DMA could be transformed into a policy and planning body, in addition to being a regulator. ƷɆ DWIR could be turned into a river management authority, which will be in charge of Myanmar’s rivers, waterways, and river ports. Resources should then be earmarked for DWIR to be financially autonomous. ƷɆ Alternatively, DWIR and MPA could be merged into a port and waterways authority. This authority would manage and develop water transport infrastructure on behalf of the government. The advantage would be that such entity could be fully self-financing, ensure some degree of cross-subsidization from sea transport into river transport (insufficiently funded). Since the river approaches Yangon Port, the river and seaports should be managed by the same entity, as was the case until 1972. The sector can only be sustainable if it mobilizes higher budgets. The historic level of maintenance and operations budget of DWIR ($2 million only) would need to be doubled in the short term, and possibly raised to $10 million in the medium term. At some point, earmarked sector resources (e.g., share of fuel levy, vessel registration fee) could replace government resources. In the short run, the sector will need government subsidies for capital investments of about $200 million. These would likely not be recovered, even though parallel revenue sources (water tax, land development revenues) may be mobilized. Finally, a model of development of the river ports that associates national and regional or state governments is needed. Meanwhile, an option may simply to declare that some of the river ports are of national importance, and to request MPA to lead in their development in cooperation with DMA and DWIR.

28

Organization of the Water Transport Sector 29

4.1 Union Government Organizations The water transport sector is under the direct management of the Ministry of Transport and Communications (MOTC). The MOTC was created in April 2016, through the merger of the former Ministry of Transport, Ministry of Rail Transportation and Ministry of Communications. At the time of writing this report, the organization structure of the new ministry had not yet been announced. The organization chart of the former Ministry of Transport, which used to manage the water transport sector, is presented in Figure 13.

Figure 13: Ministry of Transport Organization Chart (until April 2016) Ministry of Transport

Department of Transport (until 2015)

Department of Civil Aviation

Department of Marine Administration Directorate of Water Resources and Improvement of River Systems

Corporatized Units

Department of Meteorology and Hydrology

Myanmar National Airlines Myanmar Five Star Line


Move to Ministry of Education

Merged Unit

Myanma Shipyards

Source: Government of Myanmar, Ministry of Transport.


Myanmar Maritime University Institute of Marine Technology


Within the MOTC, the main units of interest to this analysis are the Department of Marine Administration (DMA), the Directorate of Water Resources and Improvement of River Systems (DWIR), the Inland Water Transport (IWT), and the Myanma Port Authority (MPA). These units are discussed below. The 2008 Constitution of the Republic of the Union of Myanmar sets the responsibilities of the union and state or region governments in the sector: ƷɆ ƷɆ

The union legislature has domain over inland waterway transport, land transport, carriage by sea, maintenance of waterways, major ports, and shipbuilding repair and maintenance. The state or region legislature has domain over ports, jetties, pontoons having the right to be managed by the region or the state; and the systematic running of private vehicles within the region or state.

4.2 Department of Marine Administration The DMA is within the MOTC. The DMA is headed by a director general who reports to the permanent secretary of the MOT. The director general is in turn supported by deputy directors general who are responsible for key areas of department’s activity. The DMA has nine subdivisions:8 ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

Legal and Technical Standard Division Marine Engineering Division Maritime Safety, Security and Environmental Protection Division Nautical Division Planning Division Seafarer Division Shipping Division State & Region Offices Division (Upper Myanmar) State & Region Offices Division (Lower Myanmar)

Mandate and Responsibilities DMA’s mandate is to ensure marine safety. Specifically, it seeks to (i) set and enforce safety standards for vessels and marine personnel, (ii) manage and develop human resources for the water sector, and (iii) respect international obligations regarding sea rescue and environmental protection. In these functions, DMA is responsible for the following: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

8

all maritime legislation and regulations, registration of ships and seafarers, and business licensing of vessels (including river vessels), accident investigation and arbitration, enforcement of port and vessel regulations, and certification of seafarers and, international relations.

Department of Marine Administration. 2016. http://www.dma-mm.org/ (accessed on 20 May 2016).


4.3 Directorate of Water Resources and Improvement of River Systems The DWIR manages Myanmar’s river system. DWIR was founded in 1972 as the Waterways Department by combining the Dredging and River Conservancy sections of DMA and parts of Hydrographic Surveying section of the Port Corporation. In 1999, the department was extended and reorganized as DWIR. DWIR is headed by a director general and reports to the Minister of Transport. The instrument that empowers DWIR in the execution of its tasks is the Conservation of Water Resources and Rivers Law. Enacted in 2006, the aims of the law as stated in the preamble are ƷɆ ƷɆ ƷɆ ƷɆ

to conserve and protect the water resources and rivers systems for beneficial utilization by the public; to facilitate safe navigation along rivers and creeks; to contribute to the development of state economy through improving water resources and river systems; and to protect environmental impact.

Mandate and Responsibilities DWIR’s objectives are to (i) improve the navigation channel, including achieving adequate depth, and stabilize the inland river ports; (ii) protect the riverbanks from erosion; (iii) enable use of water for drinking and agriculture; and (iv) prevent river pollution. DWIR’s activities include the following: ƷɆ ƷɆ

ƷɆ ƷɆ

monitoring activities such as (i) channel surveying and mapping, (ii) hydrographic monitoring, (iii) establishing databanks and research, and (iv) water quality monitoring, waterway management activities such as (i) river training structures, (ii) dredging, (iii) navigation aids, (iv) snag removal, (v) monitoring, marking, and maintenance of channels, and (vi) provision of information on least available depth (LAD) and issuance of warnings, implementation of riverbank protections and, facilitation works for agriculture pumping.

DWIR also plays an important role in river bridge construction by providing assistance during the design stage and implementing training and riverbank works to sustain the bridges.

Organization The organization of DWIR is shown in Figure 14.


Figure 14: Directorate of Water Resources and Improvement of River Systems Organization Chart Director general Deputy director general Administration

Hydrological research & planning

Waterways conservation

Marine & equipment

Administration

Planning

Survey

Fleet

Accounts

Accounts

River engineering

Repair

Stores

Dredging Navigation

Divisional offices Sub-divisional offices Source: Directorate of Water Resources and Improvement of River Systems.

Analysis Waterway improvements have been a low priority for DWIR. As a directorate within the MOTC, DWIR’s funding is fully contained within the annual budget provided to the MOT by the government. Among its many activities, DWIR prioritizes river protection works and works related to bridge construction across the rivers. Little funding has been allocated to survey of river channels, establishment of river navigation aids, or dredging of river channels to ensure LAD is available. In essence, river navigation is not a high priority and, as a result, river transport is carried out by each vessel probing the current river channel to determine depth and navigability. River depth changes are not surveyed regularly or published for users. DWIR faces considerable difficulties in executing its tasks. The law is silent on the development of river ports. Hence, while there is recognition that proper handling facilities are required but are not available, no one has taken the initiative to build these facilities. Also, DWIR has no sufficient funds to carry out its mandate. It is unable to have access to modern technology and tools to manage the rivers properly. Maintenance dredging is insufficient to keep up with the rate of sedimentation, and river training works to regulate the flow of water cannot be implemented due to lack of funds. The inadequate attention to the development of river transport is reflected in the meager budget allocated to the maintenance of the channels. The amount spent on improving and maintaining the channels is only an average MK300,000/km of navigable waterways ($300/km in 2014). It is also worth noting that within the minuscule amount spent on the channels, less than 40% was actually spent on channel improvement works, as the bulk of the budgeted amount went to river bank protection.


Other rivers within the immediate region have been improved and offer a competitive option to road transport. For instance, Viet Nam has invested in both the Red River in the north and in the Mekong River in the south. The Viet Nam Inland Waterways Administration, under the Vietnamese Ministry of Transport, manages the rivers. A summary of the status of the Viet Nam river system is provided in the box below.

Box: Case Study on the Viet Nam Inland Waterway Sector The inland waterway transport sector in Viet Nam is governed by the Law on Inland Waterway Navigation (2004) and the Law on Dykes (2006). These laws govern the sector on the Red River and the Lower Mekong River. The Mekong River is an international river and complies with Vietnamese law and with agreements made through the Mekong River Commission; the agreements are binding on all member countries. The main river channels have (i) in the north, a width of 30–36 meters (m) and a least available depth (LAD) of 1.5–3.6 meters; and (ii) in the south, a width of 30–100 m and an LAD of 2.5–4.0 m. Out of the 220,000 kilometers (km) of rivers in Viet Nam, 41,900 km are navigable and 15,4366 km are receiving maintenance. The major routes are only 4,553 km. Objectives of the River Master Plan to 2020 1. Exploit the natural advantages of waterways in transporting bulk cargo at lower costs and minimal environmental impact. 2. Achieve vertical integration within inland waterway transport by synchronizing the development of routes, ports, handling equipment, vessels, and managerial capacity to meet the demand for cargo and passenger transportation at higher quality and safety. 3. Develop inland waterway transport infrastructure to form a seamless system with other transport modes and in coordination with irrigation and hydropower sectors. 4. Upgrade the fleet with a more efficient configuration that is also safe and better suited to existing conditions in canals and rivers. 5. Broaden the financing base for inland waterway transport, with the public sector focusing on the river channels while collaborating with the private sector in port development. River Management The Viet Nam Inland Waterways Administration (VIWA) provides navigation aids and river management (dredging). It offers 24-hour navigation up to Ha Noi on the Red River and up to Viet Nam and Cambodia border on the Mekong River. VIWA maintains river stations. To upgrade canal infrastructure and implement navigation aids, VIWA received donor assistance from the World Bank, Asian Development Bank (ADB), and others. Still, backlog dredging remains a problem, as funding for river works is limited. Efforts to recover user fees have largely been dropped, but commercialization has been a success. Of the 15 river management stations, 5 stations have been equitized and operate under contract with some other commercial opportunities. Dredging is all done under contract. Inland Waterways Outputs In 2008, inland waterways still accounted for the highest tonnage share among all modes, at 48.3% (higher than road’s share of 45.4%). The average length of haul is 112 km, which is lower than for roads (143 km). This contrasts with European countries, where rivers are only competitive on long distances. Source: World Bank. 2013. Facilitating Trade Through Competitive, Low-Carbon Transport: The Case for Vietnam’s Inland and Costal Waterways. Washington, DC.


4.4 Myanma Port Authority Mandate and Responsibility Myanma Port Authority (MPA) is a government agency vested with the responsibility to regulate and administer Myanmar’s coastal ports. It is a department under MOTC. Located in Yangon, the current MPA was founded in 1989. The defining laws that govern the MPA are all preindependence. In 2015, the government was considering legislation to change the status of MPA into a self-financing state-owned enterprise. MPA’s objective is to “provide services (loading, discharging, storage of cargoes, receipt and delivery of transit cargoes etc.) for vessels calling to the [sic] all ports of Myanmar within the minimum ship turn round time.” The MPA is responsible for nine ports around the coast of Myanmar; Yangon Port is the principal one. MPA acts both as a landlord and as a port operator. MPA manages the port areas and is responsible for the development of port lands and keeping capacity in line with demand. MPA arranges for the maintenance and dredging of the port area and for access to the ports. In March 2011, MPA began dredging Yangon Port to increase the size of vessels that can dock at the port (from 15,000 to 35,000 tons deadweight). Dredging is also needed for maintenance of the two constraining bars on the river. MPA provides pilotage services for incoming and outgoing vessels. There is no vessel traffic control system, and pilots are responsible for the movement of the vessels in the port area. The port provides stevedoring services. In addition to its own terminals, MPA is also responsible for the overall access and landlord functions for the private terminals in Yangon Port.

Organization MPA’s historic organization (Figure 15) has been recently expanded with the addition of the department of international relations and research. MPA staff was reduced from 11,000 to 3,200 during 2010–2013. Officers currently number approximately 300. In 2014, a new board of directors was formed with seven members: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

chair, managing director, port operations director, shipping operations director, legal specialist, business specialist, and management specialist.

Under the pending law, MPA staff would remain government employees with all rights, but MPA would be able to top up government-stipulated salaries. MPA would have the right to amend service fees, but all requests to amend the fee structure will still need to be submitted to the MOT for review and approval. Foreign or domestic investment in port service operations will be allowed. This covers areas such as port terminal construction and operation, and contracted delivery of services such as stevedoring.


Figure 15: Myanma Port Authority Organization Chart (as of 2014) Director general Deputy director general

Traffic department

Shipping agency department

Mechanical division

Progress Internal audit coordination division division

Marine department

Civil engineering department

Mechanical engineering department

Accounts department

Personnel department

Stores department

Computer division

Rakhine state port

Ayeyarwaddy division port

Mon state port

Tanintharyi state port

Source: Myanma Port Authority.

There are currently eight privately operated terminals in Yangon port. In addition, there are 18 international wharves, 2 inland container depots, and 40 pontoon type jetties catering to domestic traffic.

Traffic International transport by sea has grown steadily since 2004–2005, reaching about 20 million tons in 2014– 2015 as reported by the Myanmar Customs Department (Figure 17). Coastal shipping shrank during 1990– 2005, but has since been on a quick rise. Still, it only represented a marginal part of port traffic by volume, at 1 million tons only (Figure 18).

Figure 16: Trade by Sea (million tons) 25

Figure 17: Coastal Shipping (million tons) 1,200 1,000

20

800 15 600 10 400 5

Entry

Clearance

Source: Myanmar Customs Department.

0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0

200

Entry

Clearance

Source: Myanmar Customs Department.


MPA, which reports generally comparable figures, estimates that in 2011 total port traffic already reached 24 million tons, over 95% of which is from Yangon Port. Both containerized traffic and non-containerized traffic have grown steadily between 2005 and 2015. At present, non-containerized traffic is about four times larger than containerized traffic. As illustrated by Figure 19, non-containerized traffic for export grew quickly during 2007-2009.

Figure 18: Myanma Port Authority Container Traffic (million tons) 6 5 4 3 2

400 350 300 250 200 150 100 50 0

00 20 0 20 1 0 20 2 0 20 3 04 20 0 20 5 0 20 6 0 20 7 0 20 8 0 20 9 10 20 11

1

Figure 19: Myanma Port Authority Container Traffic (‘000 TEUs)

00 20 0 20 1 02 20 03 20 04 20 05 20 06 20 0 20 7 08 20 09 20 10 20 11

20

0

20

Import

Import

Export

Total


Export

Total

FY = fiscal year, TEU = twenty-foot equivalent units. Source: Myanma Port Authority.

Figure 21: Myanma Port Authority Total Traffic (million tons)

Figure 20: Myanma Port Authority Cargo (million tons) 30

20 18 16 14 12 10 8 6 4 2 0

25 20 15 10 5

00 20 0 20 1 02 20 0 20 3 04 20 0 20 5 0 20 6 0 20 7 08 20 0 20 9 10 20 11

20

20

00 20 0 20 1 02 20 0 20 3 04 20 0 20 5 0 20 6 0 20 7 08 20 0 20 9 10 20 11

0

Import Import

Export


Total

Export

TEU = twenty-foot equivalent units. Source: Myanma Port Authority.

Total


Myanmar ports handled about 400,000 twenty-foot equivalent units (TEU) in 2011, representing about 5 million tons of freight. The MPA argues that this traffic level represents approximately 70% of the current berthing and handling capacity, and an expansion program is proposed to add an additional 14 wharves along the Yangon riverfront to cater to the growing traffic demand. Thilawa Port, located 16 km downriver from Yangon, is also slated for expansion. Over the longer term, the deep-sea port of Dawei, 615 km south of Yangon, will likely be developed. While the long-term potential of Dawei is strong, in the short- to medium-term, the expansion and improvement of the ports at Yangon and Thilawa are likely to merit more attention.

Revenues and Expenditures Until 2006, MPA revenues and expenditures were in balance. However, since the reform of fuel prices in 2007, revenues have remained consistently growing with tonnage but expenses have grown much faster. As a result, from 2007–2008 onward to 2010–2011 (last data available), MPA has run a deficit. This is a concern because port authorities around the world are largely net cash generating. As traffic grows, revenue also grows and, in most cases, many of the port costs remain fixed. Thus, revenue growth normally outpaces expenditure. This relationship may not be true for MPA now, particularly in the shorter term. MPA will need to invest in some areas if Yangon Port is to be keep up with expected international standards. The deepening of the berths in Yangon Port for 35,000 dwt vessels is costly. It also requires the dredging of two sandbanks downriver. On the revenue side, the port tariff and dues have not been updated since 1998, even though costs have risen. Several terminals operated by the private sector are engaged in container handling. These terminals are owned by MPA and leased to operators for a specified period under certain terms and conditions.

Analysis A business model based on the principle of public ownership and private sector operation is appropriate. However, while the arrangement is generally satisfactory, there is still room for improvement. The number of berths is high and throughput per berth is low. Terminal operators’ performance needs to be improved by requiring them to meet certain targets as a condition of the lease (berth throughput, vessel turnaround time, dwell time of containers in terminal, equipment downtime, etc.). Berth productivity can be improved by increasing the deployment of more equipment (quay cranes and yard stackers) and the use of information technology to drive operating systems and procedures. If the port is adequately equipped and properly operated, a throughput per berth of 1 million TEUs is achievable. The port has outgrown its location, and there are compelling reasons to relocate it to a more suitable place. It occupies land in the heart of the city that can be put to more productive use. There is also limited space for expansion. Traffic to and from the port adds to Yangon’s road congestion. In addition, Yangon port is only a river port, which cannot meet Myanmar’s long-term needs. Access to the port is difficult and limited to vessels drawing a draught of less than 9 m. A new location with deeper water and better access is needed for Yangon to handle the new generation of container vessels.


With or without reform, the MPA will need to address a number of important issues: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

define a hierarchy of port services and function, define landlord functions and services, outsource service delivery to private operators (stevedoring—all terminals), define pricing policy and application, develop a competition policy for service providers, plan for efficient port operations—port facilities and services and, improve port management standards.

Most of these issues do not relate to the reform process itself, with the exception of whether MPA will continue to offer commercial services from its own terminal or become fully a landlord port authority. One of MPA’s operational priorities is the development of a port vessel management system. Ship movements in the harbor can be intensive. Until a new location is found, ship movements in the harbor are expected to increase. In a busy port, traffic monitoring and movement control is essential to safe navigation. The installation of a Vessel Traffic Management System (VTMS) may be timely. Once a VTMS is installed at Yangon Port, each ship will be given a temporary registration number and a Global Positioning System location tracking device. The Japan International Cooperation Agency (JICA) is providing assistance to develop such system.

4.5 Inland Water Transport Mandate and Responsibility A 2015 law on inland water transport updated the mandate and responsibility of IWT. For the past 50 years, IWT has functioned under the requirements of the Road and Inland Water Transport Law of 1963. As indicated in the IWT documents, the mandate and role of IWT are to ƷɆ ƷɆ

carry out transportation of passengers and freight along the waterways of Ayeyarwaddy River, the Chindwin River, and also in the Delta areas, Rakhine, Mon, and Kayin states; and operate ferry services for the convenience of passengers and shippers.

Organization The organization structure of IWT is shown in Figure 22.

Figure 22: Inland Water Transport Organization Chart Managing director General manager

Administration Department

Inspection Department

Source: Inland Water Transport.

Transport Department

Engineering Department

Cargo transport Department

Marine Department

Finance Department


This structure is very similar to the structure in 1994 as reported in the Comprehensive Transport Study, except that the Transport Department has been split into two: (i) cargo to better address the demand for freight services, and (ii) inspection. The Administration Department is responsible for the overall management of IWT, under the guidance of the managing director and general manager. The Inspection Department determines if the work of the other departments is efficient and complies with targets. It is also responsible for maximizing IWT’s profitability, and ensuring that there is no leakage of funds from passenger and freight service revenues. The Transport Department is responsible for operating the passenger and passenger-cum-cargo vessels. The Cargo Transport Department is responsible for operating the 75 powered cargo vessels and 137 noncargo vessels. The department’s vessels mainly carries bulk commodities. The Engineering Department is responsible for constructing new vessels, repairing and overhauling older vessels, repairing mechanical equipment, and re-engining vessels. The work of the Engineering Department is allocated to six dockyards. The Marine Department essentially functions as the personnel department of IWT. It manages the vessels crew, dockyards staff, and survey and inspections staff. The Accounting Department manages the finances of IWT. It monitors revenue and expenditure, carries out internal audit, and prepares statements of account and other financial reports.

Staffing The overall staff levels of IWT is shown in Table 15. The sanctioned staff levels are not likely to be ever achieved. As noted below, the lack of profitability and the challenge of recapturing market share will keep staff levels at current or even at lower levels in the future. All staff are government employees and enjoy government pension guarantees.

Table 15: Staff Levels of Inland Water Transport Item Officers

Sanctioned

Appointed

273

132

Staff

10,666

2,862

Total

10,939

2,994

Source: Inland Water Transport. Data as of October 2015.


Traffic IWT remains a significant player in the water transport system, but that position is at risk. IWT currently operates 225 vessels and 148 barges, comprising passenger vessels and ferries, passenger-cum-cargo vessels that also carry cargo, a significant fleet of bulk cargo vessels and dumb barges (Table 16). Statistics show that 30% of IWT’s passenger vessels was renewed in the 1990s, but almost none in the 2000s. Half of passenger vessels are more than 40 years old, and the average age is 39 years. IWT stagnated during 1990–2005. Even with considerable fleet resources, IWT is unable to retain market share because of poor navigable river system capacity and absence of port handling facilities. A transition to moving bulk cargo over long distances was not made. Considerable focus remained on passenger services, but service quality continued to fall. Meanwhile, roads have improved, and river transport faced stronger competition from trucks and buses. While river transport activity grew, IWT’s market share tumbled as demand shifted steadily to road transport. IWT’s financial position then deteriorated during 2006–2011. In 2006–2007, the government removed IWT’s access to cheap fuel. But because of fears of inflation, IWT was prevented from aligning its rates to match costs. As a result, government subsidies were needed as losses began. IWT also began to focus on captive markets (short-distance government freight, passenger ferries, remote communities). But as the fleet aged, service quality deteriorated. IWT market collapsed after 2011. In 2012, the government moved to a market-based exchange rate, improved business conditions and access to credit, abolished the fuel subsidization system, and reduced tariffs on vehicle imports, sparking a quick growth in the number and scale of private sector transport operators (particularly road). Increased input costs forced IWT to raise rates against an aggressive competitive market. The combined effect of more private competition and higher IWT rates lead to a collapse of IWT traffic. Since 2010–2011, there has been a major contraction of traffic for both freight (–58% in volume, –65% in quantity) and passenger (–52% in volume, –83% in quantity). Long-distance passenger traffic almost disappeared in 2013–2014 (Figure 23 and Figure 24).

Table 16: Inland Water Transport Vessels in Use (2014) Type of Vessels

Number

Powered Craft

Passenger-cum-cargo

Powered barge Tug Oil tanker Water tanker Multipurpose vessels (departmental use)

122 48 22 1 1 5

Dumb Craft Cargo barge Oil barge Station pontoon

131 11 32

Total Powered Craft Dumb Craft

199 174



Figure 23: Inland Water Transport Passenger Traffic 1,000,000

30,000

Thousand passengers

800,000 700,000

20,000

600,000 500,000

15,000

400,000 10,000

300,000 200,000

5,000

Thousand passenger-miles

900,000 25,000

100,000 0

FY 1 FY 990 19 95 FY 20 00 FY 20 0 FY 4 20 05 FY 20 06 FY 20 0 FY 7 20 0 FY 8 20 09 FY 20 10 FY 20 1 FY 1 20 12 FY 20 13

0

Passengers

Ferries

Non-river crossing

Passenger-miles

FY = fiscal year. Source: Inland Water Transport annual traffic and financial accounts.

Figure 24: Inland Water Transport Freight Traffic 800,000

6,000

Thousand tons

600,000 4,000

500,000 400,000

3,000

300,000

2,000

200,000 1,000

100,000

0

FY 19 90 FY 19 95 FY 20 00 FY 20 04 FY 20 05 FY 20 06 FY 20 07 FY 20 08 FY 20 09 FY 20 10 FY 20 11 FY 20 12 FY 20 13

0

Freight ton

Freight ton-miles

FY = fiscal year. Source: Inland Water Transport annual traffic and financial accounts.

Thousand ton-miles

700,000

5,000


Financial Status Passenger transport has become a loss-making business for IWT, but it still accounts for about half its operations. IWT’s passenger and freight revenues only covered direct operational expenses in the 1990s (not including depreciation and capital costs). The situation is now similar for freight, but passenger rates barely covered 20% of direct expenses until 2011. Since the increase in rates, freight now accounts for 50% of IWT’s revenues, the same level as in 2000. Passenger transport now generates 30% of total revenues (but possibly half of the costs). During 2005–2006 and 2011, IWT ran a large operational deficit which was financed by the general government budget. IWT’s cash expenditures—not including investments needed to renew capital—are more than twice its cash receipts. But as illustrated in Figure 26, while traffic has fallen and costs have risen, IWT has been able to bring its operating ratio back to approximately 1.0. IWT is still very much in financial trouble, but its financial situation can be improved. IWT needs to reduce costs even more and increase its positive cash flow and retained earnings. As indicated in Figure 27, IWT is now achieving an operating ratio of 1.0. This is a significant achievement given the difficulties IWT faced in providing competitive transport services and maintaining market share. But more needs to be done. Figure 27 illustrates the key components of IWT’s operating and overhead cost. Two items stand out. First, pension obligations are very high; IWT has 3,200 working staff and 4,500 pensioners. Second, there is long-term debt. Both cost items are possible sources of savings.9

Figure 25: Origin of Inland Water Transport Revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% FY 20 00 FY 20 04 FY 20 05 FY 20 06 FY 20 07 FY 20 08 FY 20 09 FY 20 10 FY 20 11 FY 20 12 FY 20 13

FY 19 95

FY 19 90

0%

Passenger revenues

Freight revenues

Other revenues


9

ADB. 2016. Myanmar Transport Sector Policy Note: How to Reform Transport Institutions. Manila.


Figure 26: Inland Water Transport Revenue and Expenditure (MK billion) 18 16 14 12 10 Revenues 8

Expenditures

6

Investments

4 2

FY 19 90 FY 19 95 FY 20 00 FY 20 04 FY 20 05 FY 20 06 FY 20 07 FY 20 08 FY 20 09 FY 20 10 FY 20 11 FY 20 12 FY 20 13

0

FY = fiscal year. Source: Asian Development Bank estimates, based on data from Inland Water Transport.

Figure 27: Inland Water Transport Costs and Revenues as of 2013 (MK billion) 14 12 Break-even Line 10 8 Sustainability Line 6 4 2 0 Costs Fuel Vessel Salaries Pension Other

Revenues Freight Passenger Towage, hire, and demurrage Miscellaneous

Source: Inland Water Transport annual traffic and financial accounts; Asian Development Bank estimates.


4.6 Status of River Ports The institutional structure for management of the river ports is still in a state of flux. According to the Constitution, the states or regions have jurisdiction over “state and regional” ports, but no port has yet been designated that way. By law, the Directorate of Water Resources and Improvement of River Systems (DWIR) has jurisdiction over the riverside facilities up to 150 feet above the high water mark. However, that space is insufficient to create a functioning port unless the port is totally constructed on reclaimed land and remains below the 150-foot line. Such is the case for the new proposed port facility in Mandalay to be constructed by JICA which will be within the DWIR sphere of responsibility. But even in that case, the ancillary space beyond the formal port remains the responsibility of the municipal or regional or state government. Local governments have been reluctant to invest in port infrastructure, partly because the waterside facilities are not available and partly due to lack of investment funds. However, once decent river port facilities at key locations are available, the port dockage fees and port handling fees should cover the initial investment cost and the cost of operation and maintenance.

4.7 Possible Directions for Improvements Issues The main institutional issues to be solved to enable river transport development are the following: ƷɆ ƷɆ ƷɆ

ƷɆ

absence of a clear entity leading the policy-making; lack of internal resources and government support; absence of a clear custodian for river ports (even MPA is not clearly in charge of Yangon Port’s river shipping operations which, among others, prevents the development of direct river or sea transshipments); and quick decline of IWT, which creates the risk that river transport operations remain dominated by small-scale transporters unable to achieve sector modernization.

Institutional Reforms A policy-making body in charge of development of river transport and sea transport is needed. Currently, the Department of Marine Administration (DMA) ensures the regulation and inspection of all vessels and crew, but not services; the Transport Planning Department regulates river transport services; MPA ensures the development of seaports but not river ports; and DWIR manages inland waterways but has no mandate to develop ports or services. To fill the gaps within this framework, several options are possible: ƷɆ

DMA could become the leading policy-making department in charge of developing all water-based transport. It would keep its regulatory and licensing functions (possible alternatives include creating a dependent maritime safety agency, or delegating operational licensing tasks to local governments), develop capacity for policy and planning, take over licensing of services, and ensure oversight of delivery units.


ƷɆ

ƷɆ

DWIR could be turned into a river management authority that would be in charge of Myanmar’s rivers, waterways, and river ports. To function effectively, this authority would need new financial resources, e.g., water taxes, riverbank development, fuel tax, and maybe a share of the hydropower revenues. Alternatively, DWIR and MPA could be merged into a port and waterways authority. This authority would manage and develop water transport infrastructure on behalf of the government. The advantage would be that such entity could be fully self-financing, and ensure some cross-subsidization of insufficiently funded river transport by sea transport. Since the river approaches Yangon Port, the river and seaports should be managed by the same entity, as was the case until 1972.

Either the River Management Authority or the Port and Waterways Authority would be a state-owned enterprise under the supervision of DMA.

River Port Management The following are some options for better allocating responsibilities for river ports: ƷɆ ƷɆ ƷɆ

DWIR could receive by law the task of developing and operating major river ports, which would have to be designated as such. DMA could then take the lead in planning. Large local ports could be planned by the union government, and managed as companies jointly owned by the central and local governments. Should customs clearance become feasible at Mandalay Port, MPA would then have jurisdiction over the port.

Financing Cost recovery of river improvements is rare, and the resources are limited. Total turnover of river transport in Myanmar in 2013 was just $35 million, of which $10 million was from IWT. With improvements, the turnover of river transport may increase to $130 million by 2025. Assuming that the government is able to levy 10% of the sector turnover to finance maintenance and investments, this would generate a maximum of $3.5 million currently and up to $12.5 million by 2025, which would be just enough to finance proper river channel maintenance and operations. Major improvements would have to be fully financed without direct cost recovery from the government. Assuming that this is the objective, the simplest ways to charge would be the following: ƷɆ ƷɆ

10

Fuel levy. A level of $0.10 per liter for road use is recommended.10 If this is applied to river operators, a fuel levy would raise about $1.5 million–$2.0 million from river transport. Vessel registration fee. The average turnover of each vessel is just below $10,000 a year. Up to 5% of that amount ($500/vessel) could be charged on average for powered vessels (more than 20 horsepower) in proportion to the vessel horsepower.

ADB. 2016. Transport Sector Policy Note: How to Improve Road User Charges. Manila


Capital investments could be financed through government budgets, international financing institutions (loans to be repaid by the budget), and cross-subsidies from nontransport activities. This is the model used for the Rhone River in France.

Private Sector Opportunities There are some opportunities for larger private sector development: ƷɆ

ƷɆ ƷɆ ƷɆ

Should the government make minimum investments needed to improve the waterway, modern river transport operations would become feasible. This sector could then attract private investments in modern barges and vessels. Dredging could be outsourced and even become a lucrative activity. MPA could fully transform into a landlord port manager, and cease direct operation of its terminals. MPA, once financially sustainable, could also be partly commercialized with private investors.

Information Systems After a VTMS is established in Yangon Port, basic information systems should also be developed for the rivers. A simple requirement would be a Global Positioning System tracking device on each river vessel.

Inland Water Transport Restructuring Without major restructuring, IWT will quickly face the threat of insolvency. Options for restructuring are discussed in Appendix 1 to the 2016 Asian Development Bank (ADB) publication Myanmar Transport Sector Policy Note: How to Reform Transport Institutions. Under the technical assistance for Transport Sector Reform and Modernization, ADB is providing advice on a restructuring strategy.11

11

ADB. 2014. Technical Assistance to the Government of Myanmar for Transport Sector Reform and Modernization. Manila.

APPENDIX 1

Rivers of Myanmar

Ayeyarwaddy River The 2,100-kilometers long Ayeyarwaddy originates in Kachin State, at the confluence of the Mali River and N’Mai River about 45 km north of Myitkyina. The western Mali River branch starts from the end of the southern Himalayas, north of Putao. The river dissects the country from north to south and empties through a nine-armed delta into the Indian Ocean. On its way to the sea, it is joined by the Chindwin River, about 800 km from its source on its right bank. At Hinthada, about 218 km north of Yangon, the Ayeyarwaddy enters its delta. The river to Pathein forms the western limit, while the Yangon River forms the eastern limit of the delta. The delta has a network of rivers and creeks that collectively make up about 2,400 km of navigable waterways. In some parts of the delta, these waterways are the only form of transport between economically important centers of the rice and fishing industries. The network may be divided into three sections: (i) a northern route from Yangon to Hinthada, (ii) a central network from Yangon to Pathein, and (iii) a southern network from Yangon to Mawlamyinegyun. Generally, the Ayeyarwaddy, which is a wide and shallow river, has numerous islands and narrows sharply from 800 m to just 45 m at five points (Sinbo–Bhamo, Sinkan–Thinbawin, Male–Shwediak, Minhla– Migyaungye, and Kama–Sitsayan) which impact on the flow of the current and place some navigational constraints in the process.

Chindwin River The Chindwin is the major tributary of the Ayeyarwaddy. Originating in the Himalayas, it runs south through a region of fertile meadows rich in natural resources for about 1,100 km before it joins the Ayeyarwaddy south of Mandalay. The upper reaches of the Chindwin are very shallow during the low water season, and commercial navigation is only possible from the confluence of the rivers at Homalin (some 500 km away) and Hkamti. The river becomes braided below Monywa.

Thanlyin River The Salween originates in Tibet and flows through Yunnan where it is known as Nu Jiang before it enters Myanmar. The river is 2,815 km long, of which 2,410 km is in Myanmar. A stretch of the river meanders through Thailand on its way to Mawlamyine and the Andaman Sea. It is navigable between Mawlamyine to Hpa’an, and for about 90 km from the mouth in the rainy season.

47

48Appendix 1

Sittaung River As described in the Encyclopedia Britannica: “The Sittaung, in east-central Myanmar, rises from the edge of the Shan Plateau northeast of Yamethin and flows south for 420 km to empty into the Gulf of Martaban. The broad Sittaung River valley lies between the forested Bago Mountains on the west and the steep Shan Plateau on the east, and holds the main road and railway from Yangon to Mandalay as well as the major towns of Bago, Taungoo, Yamethin, and Pyinmana. The river is navigable for 40 km year-round and for 90 km during 3 months of the year. It has been used mainly to float timber, particularly teak, south for export. Its lower course is linked by canal to Bago River. This canal, built to bypass the tidal bore that afflicted the mouth of the Sittaung, once provided the only route from Yangon to Taungoo.”12

Kaladan River The Kaladan rises in the Lushai Hills and flows about 650 km through Chin State, entering the Bay of Bengal near Sittwe. It is navigable for about 176 km.

Table A1: Major Rivers of Myanmar Length (km)

Catchment (m2)

Discharge (million m3)

Ayeyarwaddy

2,100

288,900

313,720

Chindwin

1,100

115,300

141,290

Sittaung

420

34,395

41,900

Thanlyin

2,410

158,000

257,920

650

22,611

53,800

River

Kaladan 2

3

km = kilometer, m = meter square, m = meter cube. Source: Directorate of Water Resources and Improvement of River Systems.

Other Rivers Other rivers worth mentioning, although their use for transportation has not been exploited to any significant extent, are the (i) Attayan River which runs south to north in Mon State to join the Thanlwin just to the east of Mawlamyine, reported to be navigable for about 117 km from Kya-In Seikkyi to Mawlamyine; (ii) Gyaing River which has its source in Thailand and flows westwards to join the Thanlwin about 5 km east of Mawlamyine, reported to be navigable for about 88 km from Kyondoe to Mawlamyine; (iii) Lemyo River with its headwaters in Chin State and flowing into the Bay of Bengal near the town of Myebon, navigable for about 96 km from Sittwe to Pan Myaung; and (iv) Mayu River which flows into the Bay of Bengal near Sittwe and navigable from Buthidaung to the sea for about 128 km.

12

Sittang River. http://www.britannica.com/place/Sittang-River (accessed on 29 October 2015).

APPENDIX 2

Constraint Locations

Table A2.1: Constraint Locations on Ayeyarwaddy River in Low Water Season (November 2013—May 2014) Situation of Bottleneck (minimum feet)

Reach from Yangon (km)

Name of the Channel

1,309

Nyaungpinthar

Nyaungpinthar– Kyatuywae

3.0

40

200

December

March

1,305

Kyatuywaekyun Nyaungpinthar– Kyatuywaekyun

4.0

50

100

December

March

Katha–Tagaung

1,128

Dingyikya

Maunggone– Nyaungpinthar

5.0

40

300

December

March

4

Tagaung– Thabeikkyin

1,052

Male

Pan Pin–Male

4.5

40

200

December

March

5

Thabeikkyin– Mandalay

980

Sithal

Sithal–Hte Saung

5.0

40

150

January

March

952

Bogyikyun

Aungmingalarkyun– Sheinmakar

4.5

40

120

December

March

918

Mingoon

Mingoon–Mandalay

6.0

60

150

December

March

907

Shankalaykyun

Mandalay–Wachat

6.0

70

200

December

March

867

Kinepyin

Kyauktalone– Myithtar

7.0

70

100

January

March

858

Paletan

Natsinkyauk– Myinmu

6.0

60

200

December

March

833

Shwepaukpin

Aungthar– Mayoekone

6.0

70

100

January

February

796

Pattarkyun

Singaung–Pauktaw

6.0

60

200

December

March

Myinkyun– Kyarpasat

6.0

50

200

December

March

No 1

Regional Office

Stretch

Region 5 Bhamo–Katha

2 3

6 7 8

Mandalay– Myinmu

9 10 11

Myinmu– Shwetantic

12

Name of the Constraint Location

Depth Width Length

Duration From

To

13

Shwetantic– Lannywar

740

Thithtuakkyun

14

Shwetantic– Lanywar

690

Htaunchaukpin Thirikyun–Lanywar

6.0

60

200

December

March

653

Sanikhon

Nabaetin–Sanikhon

6.5

120

200

January

May

632

Thanatgone

Pakhannge–Bogone

6.0

120

300

January

May

15 16

Region 4 Lanywar– Nayunghla

continued on next page

49

50Appendix 2

Table A2.1: continued Situation of Bottleneck (minimum feet)


Name of the Channel

620

Marnpyaykyun

Nyaunggone– Marnpyaykyun

6.0

150

200

January

May

597

Ngachuakkyun

Nantawkyun– Baeseik

6.5

150

200

January

May

19

580

Magway Bridge

Kyarkan–Magway bridge

6.0

120

200

January

June

20

547

Myinkoon

Myinkoon– Thanpayarkan

6.0

80

250

February

May

No

Regional Office

Stretch

17 Nyaunghla– Minhla

18

Name of the Constraint Location

Depth Width Length

Duration From

To

21

Minhla– Aunglan

494

Kyaukchat

Tharwithti– Nyaungpinthar

6.5

80

150

January

March

22

Aunglan– Sisayan

445

Taungnathar

Taungnathar–Kanni

7.0

150

100

January

May

23

426

Kwanlaung

Pahtoe– Nyaungpinthar

7.0

150

200

January

May

24

416

Kanma

Nyaungpinseik– Kanma

6.5

180

125

December

April

392

Nawin

Latkhotpin

6.5

150

150

December

March

26

356

Thayetann

Thayetann– Padaetharkyun

7.0

150

300

December

March

27

395

Tayokemhaw

Akauktaung– Tayokemhaw

5.5

100

300

January

March

313

Marlakargone

Yinmugone– Marlakargone

7.0

100

350

December

March

29

292

Kanaunglay

Phoesatawkyun– Aikalaw

7.5

150

250

December

April

30

261

Thonesalkyun

Thonesalkyun– Paetakhwe

6.5

100

400

December

March

31

254

Shwethaung kyun

Laylan– Shwethaungkyun

6.5

150

300

January

March

32

248

Kyungyi

Shwethaungkyun– Pyinkatoekyun

6.5

150

100

February

March

205

Tharduchaung

Yoonthwel– Zinyawkyun

7.0

150

200

November

March

34

201

Pharrlatkhon

Zinyawkyun– Talokegone

7.0

150

150

January

March

35

162

Yaypyan

Ayeywar–Yaypyan

6.5

150

350

January

March

25

28

33

Region 3

Sisayan– Kyangin

Kyangin– Pyinkatoe

Pyinkatoegone– Gyonegyonekya


Constraint Locations51

Table A2.2: Constraint Locations on Chindwin River in Low Water Season (November 2013—May 2014)

Regional Office


Situation of Bottleneck (Minimum feet)

Duration

Constraint Location

Depth

Width

Length

806

Sinthay

Khante–Hommalin

2.75

20

200

March

May

2

795

Ngotetahtaung

Katoethatnan– Heinsoon

3

30

300

March

May

3

777

Kyarkite

MileNaung– Kyarkite

2.75

20

300

March

May

4

720

Thayetgone

Malin–Htonelone

3

20

200

March

May

5

688

NannUte

Tharyargone– Awwthaw

2.75

25

100

March

May

6

633

Kawyar

Kawyar–Hteinlin

3

30

100

March

May

608

Katthar

Hommalin– Htonmate

3.25

20

300

March

May

546

Natsat

Innthar–Myaingthar

3.75

20

400

March

May

No 1

7

Region 6

Stretch Khante– Hommalin

Hommalin– Outtaung

8

Channel

From

To

9

Outtaung– Kalaywa

328

Kyawenan

Kyawenan–Manlon

3.5

30

300

March

May

10

Kalaywa– Thintaw

249

Latpanseik

Yonethar– Nanwinchaung

3.5

30

200

March

May

11

Thintaw– Monywa

135

Natgyi

Kani–Natgyi

3.5

20

200

March

May

12

Monywa– Chindwinwa

68

Amyint

Amyint–Thayetgine

3.25

20

200

March

May

38

Shwetachaung

Maau– Shwetachaung

3.5

30

200

March

May

13


APPENDIX 3

Yearly Vessel Accidents

Table A3.1: Yearly Losses and Causes of Vessel Accidents Causes and Numbers of Accidents Unfair Waterway Condition

Lack of Vessel Strength

Careless Vessel Operator

2004

6

5

7

2005

4

3

2006

3

2007

Bad Weather Condition

Human Number of Vessel Sunk

Others

Number of Accident

1

4

23

13

1

4

6

3

2

18

12

8

7

1

2

1

5

12

9

1

0

4

3

9

1

2

19

10

12

21

2008

7

5

2

1

0

15

9

2

2009

4

2

6

1

0

13

13

21

50

2010

2

7

2

0

1

12

7

20

7

2011

3

7

4

2

0

16

13

11

14

2012

4

3

5

1

2

15

12

16

6

2013

5

3

6

1

6

21

10

3

6

1 April–30 June 2014

1

1

1

0

0

3

2

0

0

43

40

50

12

22

167

110

95

115

Fiscal Year

Total


52

Losses

Dead

Lost

-

2 8 5 8 4 10 8 6 2

2006

2007

2008

2009

2010

2011

2012

2013

1 April–30 June 2014 37

0

12

2

1

2

1

1

3

3

6

6

Chindwin River

3

0

1

0

0

0

0

1

0

0

0

1

Thanlwin River

1

0

0

0

0

0

0

0

0

0

0

1

12

0

0

1

1

0

2

1

0

3

0

3

Delta Ataran River Waterways


69

7

2005

Total

9

Ayeyarwaddy River

2004

Fiscal Year

33

0

0

4

1

3

2

5

7

4

5

2

Twante Canal

Number of Accidents in Inland Waterways

7

0

1

0

1

1

0

2

1

0

0

1

4

1

1

0

1

1

0

0

0

0

0

0

Pun Hlaing Ngamoeyeik River Creek

Table A3.2: Yearly Vessel Accidents in Myanmar’s Inland Waterways

1

0

0

0

1

0

0

0

0

0

0

0

Yangon River

167

3

21

15

16

12

13

15

19

12

18

23

Number of Accidents

Yearly Vessel Accidents53

APPENDIX 4

Inland Water Transport Charges

Table A4.1: Loading and Unloading Charges (MK/ton) Commodity

Rate

Rice

2,625

Cement

2,730

Fertilizer

2,730

Timber

Remarks

16,900

4’ x 4’ (lower)

33,800

4’ x 4’ (upper)

50,700

6’ x 6’ (upper)

8,450

Iron Furniture

13,000

Miscellaneous

8,450

’ = feet. Source: Inland Water Transport.

Table A4.2: Port Charges (MK/day) Vessel Length (feet) 25

500

25–50

1,000

50–75

1,500

75–100

2,000

100–125

2,500

125–150

3,000

150–175

3,500

175–200

4,000

200–225

4,500

225–250

5,000

250–275

5,500

275–300

6,000


54

Rate

APPENDIX 5

Cargo Forecast 2030

A5.1: Cargo Forecast 2013 (1,000 ton/day) Commodity

Truck

River

Railway

Coastal

1 Live animal and animal products

4.2

0.1

0.0

0.0

4.3

2 Fish and aquatic products

13.0

0.0

0.0

0.0

13.0

3 Vegetable and fruits

15.5

0.0

0.0

0.0

15.6

4 Grain and grain products

157.4

3.2

1.8

4.4

166.9

5 Other agricultural products (e.g., plantation product)

104.0

5.0

0.8

0.0

109.9

6 Foodstuff, beverage, and animal food

56.2

3.5

7.6

8.9

76.2

7 Petroleum, oil, and gas

30.3

21.0

1.9

63.9

117.1

8 Coal, ore, stone, and sand

63.4

0.8

2.6

0.0

66.9

136.9

10.1

15.5

4.2

166.7

33.3

0.2

0.2

0.0

33.7

11 Garment, textiles, and fabric

9.4

0.3

0.1

0.0

9.8

12 Wood and wood products

9.1

1.1

4.2

0.0

14.4

13 Paper and printed matter

3.1

0.0

0.1

0.0

3.2

14 Metal and metal products

(excluding construction material)

5.8

0.3

0.8

0.0

6.9

9 Cement, construction material (including steel frame) 10 Fertilizer (including urea)

15 Industrial material, chemicals

Total

19.6

0.9

1.0

0.9

22.3

106.2

7.1

2.8

0.8

116.8

27.4

0.5

0.3

0.1

28.3

Total

794.9

54.3

39.8

83.1

972.1

Share

87%

2%

2%

9%

100%

16 Household articles, miscellaneous 17 Machinery and parts, transportation

Note: Totals may not add up due to rounding. Source: Japan International Cooperation Agency. 2014. The Survey Program for the National Transport Development Plan in the Republic of the Union of Myanmar. Naypyitaw.

55

Myanmar Transport Sector Policy Note River Transport

Better transport is essential to Myanmar’s development. After decades of underinvestment, Myanmar’s transport infrastructure lags behind other regional countries. Sixty percent of trunk highways and most of the railways need maintenance or rehabilitation. River infrastructure does not exist, while 20 million people lack basic road access. Can the transport sector deliver upon the master plan’s objectives? What is needed to improve the quality of the infrastructure and services for the industry? How can basic transport services be provided to all? How can Myanmar reduce the economic and social cost of transport? This report is an attempt to answer these questions.



Country Partnership Strategy

March 2017

Myanmar, 2017–2021 Building the Foundations for Inclusive Growth

Distribution of this document is restricted until it has been endorsed by the Board of Directors. Following such endorsement, ADB will disclose the document to the public in accordance with ADB’s Public Communications Policy 2011.

CURRENCY EQUIVALENTS (as of 1 March 2017) Currency unit MK1.00 $1.00

– = =

Kyat (MK) $0.00073 MK1,365

ABBREVIATIONS ADB CPS FY GDP GMS SDG SES TA TVET

– – – – – – – – –

Asian Development Bank country partnership strategy fiscal year gross domestic product Greater Mekong Subregion Sustainable Development Goal secondary education subsector technical assistance technical and vocational education and training NOTES

(i)

The fiscal year (FY) of the Government of Myanmar ends on 31 March. “FY” before a calendar year denotes the year in which the fiscal year starts, e.g., FY2016 begins on 1 April 2016 and ends on 31 March 2017.

(ii)

In this report, "$" refers to US dollars.

Vice-President Director General Director Team leaders

S. Groff, Operations 2 J. Nugent, Southeast Asia Department (SERD) W. Wicklein, Myanmar Resident Mission (MYRM), SERD

P. Brimble, Principal Country Specialist, MYRM, SERD Y. Tamura, Principal Country Specialist, MYRM, SERD Team members S. Aman-Wooster, Principal Social Development Specialist (Safeguards), Indonesia Resident Mission, SERD C.N. Chong, Advisor (Procurement), SERD R. Concepcion, Portfolio Management Specialist, MYRM, SERD S. Dina, Agriculture and Rural Development Specialist, MYRM, SERD J. Duque-Comia, Senior Programs Officer, SERD B. Duy-Thanh, Senior Energy Economist, SERD E. Honda, Principal Urban Development Specialist, SERD H. Kasahara, Senior Financing Partnerships Specialist, MYRM, SERD L. Levaque, Social Development Specialist (Gender and Development), SERD T. Myint, Economics Officer, MYRM, SERD M. Naing, Associate Project Analyst, MYRM, SERD C. Nguyen, Principal Regional Cooperation Specialist, SERD D. Nguyen, Financial Sector Economist, SERD Y. Oo, Programs Officer, MYRM, SERD P. Ramachandran, Senior Environment Specialist, SERD A. Roy, Disaster Risk Management Specialist (Climate Change Adaptation), Sustainable Development and Climate Change Department P. Safran, Principal Operations Coordination Specialist (Fragile Situations), Pacific Department (PARD) S. Schuster, Principal Financial Sector Specialist, SERD G. Servais, Senior Health Specialist, SERD C. Spohr, Principal Social Sector Specialist, MYRM, SERD S. Thaung, Senior Operations Assistant, MYRM, SERD E. Thomas, Social Development Specialist (Civil Society & Participation), SERD K. Thu, Infrastructure Specialist, MYRM, SERD L. Thwin, Operations Assistant, MYRM, SERD A. Veron-Okamoto, Transport Specialist, SERD D. Wiedmer, Senior Investment Specialist, Private Sector Operations Department S. Win, Associate Project Analyst, MYRM, SERD K. Wynn, Safeguards Officer, MYRM, SERD T. Zaw, External Relations Officer, MYRM, SERD Peer reviewers E. Ginting, Director, Economic Research and Regional Cooperation Department S. Sampath, Principal Public–Private Partnership Specialist, Office of Public–Private Partnership Thant Myint-U, Yangon Heritage Trust In preparing any country partnership strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS Page COUNTRY AT A GLANCE I.

COUNTRY PARTNERSHIP STRATEGY SNAPSHOT

1

II.

COUNTRY DEVELOPMENT CONTEXT

2

A. B. C.

2 2 3

III.

COUNTRY STRATEGY FRAMEWORK

5

A. B. C. D.

5 6 7

E. IV.

Background Economic and Social Update Development Challenges Lessons from Previous Strategy National Development Strategy Role of Development Partners ADB Strategic and Thematic Objectives and Public and Private Sector Operational Priorities Priorities for Knowledge Support

7 12

STRATEGY IMPLEMENTATION

13

A. B. C. D.

13 13 14 14

Indicative Resource Parameters Implementation Priorities Monitoring of Results Risks

APPENDIXES 1. Country Partnership Strategy Results Framework

15

2. Country Knowledge Plan

17

3. List of Linked Documents

21

COUNTRY AT A GLANCE a

Economic 2012 2013 2014 2015 b GDP ($ billion, current) 80.0 62.1 66.3 62.6 GDP per capita ($, current) 1,579.0 1,214.0 1,275.0 1,193.0 GDP growth (%, in constant prices) 7.3 8.4 8.0 7.3 Agriculture 1.7 3.6 2.8 3.4 Industry 8.0 11.4 12.1 8.7 Services 12.0 10.3 9.1 59.1 Gross domestic investment (% of GDP) 30.9 32.0 32.1 34.9 Gross domestic saving (% of GDP) 36.6 33.8 32.6 31.8 Consumer price index (annual % change) 1.5 5.5 5.5 10.8 Liquidity (M2) (annual % change) 16.2 24.8 26.2 32.9 Overall fiscal surplus (deficit) (% of GDP) (4.7) (5.4) (1.1) (6.1) Merchandise trade balance (% of GDP) 1.0 0.2 (3.3) (6.1) Current account balance (% of GDP) (1.5) (0.8) (2.1) (6.2) External debt service (% of exports of goods and 2.2 3.3 2.9 4.1 services) External debt (% of GDP) 17.1 16.4 13.3 15.5 Poverty and Social Earlier Year Latest Year Population (million) 52.10 [2011] 52.50 [2015] Population growth (annual % change) 0.76 [2011] 0.88 [2015] Maternal mortality ratio (deaths per 100,000 live births) 580.00 [1990] 282.00 [2014] Infant mortality rate (below 1 year/per 1,000 live births) 77.50 [1990] 40.00 [2015] Life expectancy at birth (years) 59.60 [1990] 66.80 [2014] Adult literacy (%) 89.90 [2000] 92.80 [2013] Primary school gross enrolment (%) 87.70 [2010] 94.50 [2014] Population below poverty line (%) … … Population with access to safe water (%) 78.10 [2010] 80.60 [2015] Population with access to sanitation (%) 76.60 [2010] 79.60 [2015] Environment Carbon dioxide emissions (millions tons) 528.40 [2012] Carbon dioxide emissions per capita (tons) 0.20 [2011] Forest area (million hectares) 29.00 [2015] Urban population (% of total population) 34.30 [2015] ADB Portfolio (Active Loans) As of 31 December 2016 Total number of loans 13 Sovereign 8 Nonsovereign 5 Total loan amount ($ million) 933 Sovereign 506 Nonsovereign 427 Disbursements Disbursed amount ($ million, 2015) 42.94 Disbursement ratio (%) 11 … = not available, ( ) = negative, [ ] = latest year for which data are available, ADB = Asian Development Bank, ADF = Asian Development Fund, GDP = gross domestic product, M2 = broad money, OCR = ordinary capital resources. a Years are fiscal years, ending on 31 March of the following calendar year, e.g., 2014 fiscal year ends on 31 March 2015. Estimates for 2016 will be available upon request. b As a result of the adoption by the Central Bank of Myanmar of a managed float exchange rate in 2012, the dollar value of GDP fluctuated. Sources: Government of Myanmar; International Monetary Fund; Economic and Social Commission for Asia and the Pacific; World Bank; Knoema; and Asian Development Bank publications and estimates.

I.

COUNTRY PARTNERSHIP STRATEGY SNAPSHOT

1. Opportunities. Myanmar is undergoing a historic transformation towards democracy, a market economy, and peace and stability. A new government took office in 2016 with strong popular support and international goodwill, and is working to enable inclusive and sustainable growth. These efforts will leverage Myanmar’s strengths and high development potential, including its strategic location within Asia. The Asian Development Bank (ADB) has a unique opportunity to support Myanmar in this formative period, as outlined in the country partnership strategy (CPS) for Myanmar, 2017‒2021. 2. Development challenges. While Myanmar has enormous potential, there are significant development challenges that require attention, including (i) meeting deficits in infrastructure and human capital to boost social and economic development; (ii) maintaining macroeconomic and fiscal stability in a challenging global economic environment; and (iii) accelerating the reform process to achieve structural and institutional change; enhance the business environment; improve capacities and governance standards; and address environmental issues and climate change. 3. ADB engagement. Following reengagement with Myanmar in 2012, ADB implemented an interim CPS1; undertook a range of capacity-building initiatives and knowledge work; and made investments in energy, transport, education and training, and urban and rural development. ADB knowledge and capacity building support has contributed to government reforms and strategies. The ADB Myanmar Resident Mission has worked closely with the government, development partners, and other key stakeholders to deliver effective development solutions. 4. Strategy. The CPS, 2017‒2021 aims to support the government in laying the foundations for sustainable and inclusive economic development, and job creation for poverty reduction. ADB operations will focus on: (i) improving access and connectivity to connect rural and urban areas and markets, and to link Myanmar with the regional and global marketplace; (ii) strengthening human capital to promote a skilled workforce and increased employment, and enable the poor and disadvantaged to benefit from economic growth; and (iii) promoting structural and institutional reform to support the modernization of the economy. In implementing these priorities, infrastructure (energy, transport and urban development) will remain the mainstay of ADB operations; to enhance inclusiveness, this focus will be complemented by support for rural development, and education and training. To help accelerate Myanmar’s transformation process, ADB will intensify its focus on capacity development and governance; private sector development; environment and climate change, and disaster risk management; regional cooperation; and gender equity. 5. ADB value addition. ADB’s concessional financial resources for sovereign lending, and its market-based finance for private sector operations will leverage foreign assistance and commercial cofinancing, helping to address the country’s investment deficit. Based on its financial capacity and sector knowledge, ADB will also provide innovative knowledge solutions; support policy reform; foster national and regional connectivity; and pursue a conflict sensitive approach. With a well-established country presence and networks, ADB will act as an honest broker to galvanize development stakeholders around reform programs. 1

ADB. 2012. Interim Country Partnership Strategy: Myanmar, 2012–2014. Manila. This strategy was extended to 2016 in ADB. 2014. Country Operations Business Plan: Myanmar, 2015–2017. Manila.

2 II. A.

COUNTRY DEVELOPMENT CONTEXT

Background

6. Context. Since its liberalization in 2011, Myanmar has experienced a historic and fundamental transition—from decades of direct military rule to a democratically elected government, from central planning towards an open market economy, and from active conflict in a number of ethnic states to a managed peace process and relative stability in at least parts of the country. Development partners have resumed country operations, and international sanctions have been lifted. The government has initiated wide-ranging economic, social, and governance reforms. These have stimulated economic growth and led to a restructuring of the economy, with improved social indicators and rule of law. The government has an opportunity to leverage the country’s strengths, including abundant natural resources, a large and youthful population, and a sizable and largely untapped market. Myanmar’s strategic location at the crossroads of Asia, with 40% of the world’s population living in neighboring countries, offers substantial benefits for Myanmar and the region. 7. ADB’s reengagement in Myanmar. ADB reengaged with Myanmar in 2012 following a long absence. Under the interim CPS, 2012‒2014 (footnote 1) ADB focused on building relationships and dialogue with the government, civil society, the private sector and other development partners; providing knowledge and capacity-building support; resuming lending operations and building a significant operational program involving sovereign and nonsovereign lending and nonlending activities; and establishing a strong country presence, with offices of the ADB Myanmar Resident Mission established in Nay Pyi Taw and Yangon. ADB now has a historic opportunity to support Myanmar as it accelerates its transition and builds the foundations for inclusive and sustainable growth. B.

Economic and Social Update

8. Economic. The economy is narrowly based, with growth driven by natural resource exports (mostly gas), construction, and tourism. Agriculture dominates the economy, accounting for about 29% of gross domestic product (GDP), 52% of employment, and 20% of exports. Manufacturing contributes 20% of GDP, with garments and wood products as the major exports. The informal economy remains large. Reflecting the transformation and reform process, GDP growth has increased steadily, from 5.6% in FY2011 to an average of over 8.0% during FY2013–FY2015. While economic growth may be affected by various factors—including sectoral and price adjustments, the regional and global economy, and commodity prices— Myanmar economic growth will remain rapid in the medium to long–term as a result of ongoing reforms, increasing private sector investment, and new infrastructure projects. Macroeconomic stability remains a priority, and ongoing attention needs to be given to inflation, the fiscal deficit, and the external position including the external current account and foreign exchange reserves. The government has improved financial management, banking supervision and prudential controls, and monetary policy tools, and enacted key legal and regulatory reforms that enhance the business environment. 9. Social and gender. Myanmar has made important progress in advancing social development and reducing income-related and broader forms of poverty. Strong growth has contributed to improved living standards, and Myanmar has made some progress towards the

3 attainment of the Millennium Development Goals.2 Nevertheless, Myanmar remains one of the poorest countries in Southeast Asia, with an estimated per capita income of $1,193 (FY 2015); at least one in four people falls below the national poverty line, with many living just above it. Large numbers of people still face various non-income forms of poverty. There is some evidence that income inequality is increasing, in particular between the urban and rural population, and this is compounded by growing migration. There have been notable improvements in social and economic indicators for women, including in female literacy, educational attainment, and labor participation; and gradual increases in women’s nonagricultural employment. However, there are continuing concerns about the quality, relevance, and gender sensitivity of education; low female labor force participation; gender occupational segmentation and wage gaps; challenges related to women’s limited access to productive resources such as land, credit, and extension services; the burden of unpaid care work on women and girls; domestic and sexual violence; and unequal access to social services.3 C.

Development Challenges

10. Infrastructure and connectivity. Myanmar’s inadequate infrastructure hinders access to markets and social services and increases transport costs; this compromises the business environment, and is a main cause of poverty and regional inequality. Only 40% of Myanmar’s road network is paved, and 20 million people (half of the rural population) lacks access to allweather roads, while inland waterway and river port infrastructure is also inadequate. Myanmar’s power sector is one of the least-developed in Southeast Asia; only 34% of the population has access to electricity, and the existing power infrastructure meets only about half of current demand. The poor quality of and access to infrastructure is exacerbated in rural areas, while basic urban infrastructure and services are insufficient to enable urban centers to serve as poles for economic growth. Weaknesses in urban planning compound the situation. There is potential, however, to take advantage of modern technology to make rapid advances in development, as has been powerfully demonstrated in the telecommunication sector. Over a span of just a few years, wireless telephony has been made readily available for 85% of the population, at affordable prices and with data applications, with far-reaching impact on livelihoods. There is an estimated $120 billion infrastructure investment gap for 2017–2030 for the transport, energy, and telecommunication sectors; it is probably larger if urban infrastructure is included.4 11. Human capital. Underdeveloped human capital severely constrains Myanmar’s development. Substantial weaknesses in the education system and resulting skills deficits limit the ability of large segments of the population (and particularly poor and disadvantaged groups) to fully participate in and benefit from economic growth. The government has increased the budget for education and taken other important steps to revitalize the education sector. However, while more than 80% of youth now complete primary education, only two-fifths 2

3 4

Asian Development Bank, United Nations Economic and Social Commission for Asia and the Pacific, and the United Nations Development Programme. 2015. Making It Happen: Technology, Finance and Statistics for Sustainable Development in Asia and the Pacific. Manila. UNDP’s first progress report on the Sustainable Development Goals (SDGs) in Myanmar is under preparation. ADB et al. 2016. Gender Equality and Women’s Rights in Myanmar: A Situation Analysis. Manila. ADB. 2014. Myanmar: Unlocking the Potential—Country Diagnostic Study. Manila.

4 complete lower secondary education. There are significant disparities—by gender, location (urban vs. rural), and socioeconomic status—in (i) access to education, which widen markedly in secondary education; and (ii) workforce outcomes. Both national and international businesses consistently rate human resource inadequacies among the top constraints to doing business in Myanmar, and report that young people are ill-equipped for employment. In addition to access challenges, the shortage of workers with skills needed in a modern economy (ranging from critical thinking to vocation-specific skills) reflects weak educational quality and relevance, caused by an education system that emphasizes exams and diplomas rather than skills. Education reform, especially in post-primary education—including technical and vocational education and training (TVET)—has a pivotal role to play in developing skilled workers, increasing productivity and competitiveness, and making growth more inclusive. 12. Rural development. Almost 70% of the population and the majority of the poor and disadvantaged reside in rural areas; the rural and agricultural sectors thus require priority attention, and offer significant opportunities for achieving inclusive economic growth.5 About half of the rural population is landless, with limited sources of income other than casual labor and small businesses, while some 40% of rural households have landholdings of less than 2 hectares. Opportunities for broader integration into agricultural supply chains and development of the rural nonfarm economy in response to growing urban demands remain largely untapped due to uncompetitive returns to labor and land, rural infrastructure gaps, and limited access to markets, diversification of farming systems, and access to financial products suitable for agriculture activities. 13. Structural and institutional reform. Managing the shift from a centrally managed and heavily agriculture-based to a market-led economy requires many structural and institutional changes, including (i) a movement of labor, from agriculture to industry and services; (ii) economic diversification, and reduced reliance on resource extraction; (iii) addressing legacy issues involving enterprises owned by the state and linked to the military, and oligarchic businesses, while promoting equity, competition, and transparency; (iv) reducing extensive infrastructure deficits; (v) reintegration with regional and global markets; and (vi) strengthening institutions and increasing capacity in the public and private sectors. 14. Private sector. Myanmar’s private sector is largely dominated by informal and very small enterprises and farms, with only a few large, modern enterprises; it lacks potentially dynamic mid-sized enterprises to support economic diversification. Priorities for private sector development include: (i) updating the (largely outdated) legal and regulatory framework in line with the requirements for doing business in a modern economy; (ii) formulating policies to promote trade and investment, productivity, and competitiveness; (iii) improving infrastructure and connectivity; (iv) boosting human capital through an increased focus on essential social services such as health, education and training; (v) strengthening the financial sector; and (vi) reforming state-owned enterprises in line with international good practice. 15. Capacity and governance. The capacity of the public sector is underdeveloped, and poses a significant challenge to basic service delivery. Myanmar ranks poorly on most global indicators of governance, including corruption and independence of the judiciary. Improving governance and transparency will require strong and sustained reforms, and anticorruption measures need to be vigorously enforced. Public financial management and procurement, although improving, remain characterized by weaknesses in institutional structures, aggregate 5

Inclusive and Sustainable Growth Assessment (accessible from the list of linked documents in Appendix 3).

5 fiscal discipline, allocation of resources, and service delivery. In particular, improvements are necessary in project implementation and related civil service capacity. While legal reforms have been proceeding, stronger enforcement is critical to ensure civil liberties and strengthen the investment climate. The quality, timeliness, and accessibility of Myanmar’s economic and social statistics, while improving with ongoing development support, remain poor and constrained by weak institutional and human capacity. 16. Environment, climate change, and disaster risk. Many livelihoods in Myanmar, especially in rural areas, depend on natural resources and the environment. However, the environment and the natural resource base are under stress from increased population, commercial exploitation, climate change, and natural disasters.6 Unsustainable land and water management practices have led to decreasing forest cover, declining agriculture productivity, and poor water quality. In urban areas, people suffer from inadequate water supply, drainage and sewerage, and solid waste disposal. Myanmar is also highly vulnerable to disasters triggered by natural hazards, with a resulting average annual loss of about 3% of GDP and farreaching implications, particularly for large numbers of poorer rural households, small businesses and farmers, and marginalized groups. 7 Myanmar is highly sensitive to climate change, including sea-level rise, warming sea surface temperatures, salt water intrusion in its river deltas, prolonged droughts, and the impacts of shifting weather patterns on agriculture. Efforts are underway to strengthen technical, legal, and financial capacities to reduce risk and mitigate the effects of climate change. 17. Conflict. Poverty is unavoidably interlinked with conflict in Myanmar, where continuous civil conflict predates the country’s independence in 1948. Many ethnic communities in and around conflict areas have limited access to basic services or markets, feel marginalized, and have historically placed little or no trust in the government. In many areas, traditional state services are delivered by non-state actors. Intercommunal tensions and violence, often based on religion, ethnicity, or access to resources, have escalated. Lasting peace and protection of the rights of minorities will be critical for inclusive development in ethnic areas, but may take years to achieve. In this regard, ADB has made considerable efforts to ensure that all ADB projects incorporate conflict-sensitive principles and focus on inclusivity. III. A.

COUNTRY STRATEGY FRAMEWORK

Lessons from Previous Strategy

18. Interim country partnership strategy. The CPS draws on lessons from the interim CPS for Myanmar, 2012–2014 (extended to 2016), which provided a framework for ADB’s progressive reengagement with Myanmar. The interim CPS focused on building human

6

7

Myanmar is at high risk form natural hazard related disasters and from the potential impact of climate change because (i) of its geographical location and presence of natural hazards, (ii) exposure of people and assets to natural hazards, and (iii) existing socioeconomic vulnerabilities. United Nations. 2015. Global Assessment Report 2015. New York. Myanmar is ranked among the three most vulnerable countries to extreme weather events.

6 resources and capacities, promoting an enabling economic environment, and creating access and connectivity. The implementation of the interim CPS is considered successful.8 19. Lessons. Key lessons from the interim CPS include the following: (i) there should be a strong emphasis on knowledge services and partner coordination in the early stages of reengagement; (ii) an initial broad strategic approach has value to identify areas in which ADB has comparative advantages; (iii) ongoing efforts to increase focus are critical, as many partners are providing external assistance in some areas, and ADB’s resources are limited; (iv) there are distinct benefits from coordinating efforts geographically and systematically addressing crosscutting issues such as conflict sensitivity and stakeholder engagement; and (v) sustainable capacity building is a gradual and long-term process, which should evolve from project-specific approaches to sector and country-system development activities. Drawing on these lessons, the interim CPS final review and its validation recommend that the proposed CPS (i) sharpen the sector focus, (ii) consider a long-term approach to priority sector development, (iii) improve support for capacity development, (iv) intensify support for private provision of infrastructure services, (v) foster integrated corridor development approaches, (vi) align projects in ADB priority activities with ongoing efforts at decentralization, (vii) maintain efforts at integrating conflict sensitivity and stakeholder engagement throughout the project cycle, and (viii) redouble efforts to coordinate with other development partners. 20. Portfolio performance. Myanmar’s ADB portfolio is relatively young, with the first investment project approved in December 2013. Overall, the implementation of projects and technical assistance (TA) has been relatively slow, due to complex, unclear or undocumented government procedures; capacity constraints among civil servants; lack of familiarity of national consultants, contractors, suppliers and manufacturers with ADB policies and procedures; and the lack of familiarity of ADB staff with the operating environment. ADB has reinforced measures to address project implementation challenges through targeted capacity building, as well as collaboration with the Japan International Cooperation Agency and the World Bank through an annual joint country portfolio review process, which was initiated in 2015 to work with the government to address common project implementation issues.9 B.

National Development Strategy

21. The new administration that came into power in April 2016 has outlined its key policy priorities, and is working to develop more comprehensive economic and sector strategies and plans.10 The key priorities to guide government policy-making include (i) national reconciliation; (ii) internal peace; (iii) the emergence of a constitution that will produce a democratic, federal union; and (iv) the improvement of the quality of life of the people. The economic vision is to achieve inclusive and sustainable economic development with national reconciliation, equitable development, protection of natural resources, and job creation as overarching goals. Economic policy priorities include fiscal prudence, reforming state-owned enterprises, fostering human capital, improving infrastructure, generating employment opportunities, developing the 8

ADB. 2015. Interim Country Partnership Strategy for Myanmar, 2012–2014: Final Review. Manila; ADB. 2016. Country Partnership Strategy for Myanmar, 2012–2014: Final Review Validation. Manila. 9 The joint action plan to address implementation challenges focuses on the areas of operational procedures, procurement, financial management and auditing, social and environmental safeguards, and monitoring and evaluation. 10 National League for Democracy. 2015. National League for Democracy 2015 Election Manifesto. Nay Pyi Taw and Yangon; Government of Myanmar. 2016. Economic Policy of the Union of Myanmar. Nay Pyi Taw; and key policy speeches and statements by the President, the State Counsellor, and other members of the cabinet.

7 agriculture sector, promoting private sector development, developing the financial sector, achieving sustainable cities, implementing tax reforms, strengthening property rights, and improving competitiveness in the context of the Association of Southeast Asian Nations economic community. The new administration developed a number of strategies and plans in key areas such as transport, energy, education, agriculture and rural development, private sector development, gender, and disaster risk reduction. The government has committed to achieving the Sustainable Development Goals (SDGs) and initiated a program to develop key indicators. 22. The government has formed the Development Assistance Coordination Unit, chaired by the State Counsellor, to improve the coordination and effectiveness of development assistance to Myanmar. The Development Assistance Coordination Unit is tasked with identifying priority areas for development assistance, developing a national policy for development assistance, recalibrating the sector-level coordination structure, reviewing development loans and TA projects, and facilitating project delivery. C.

Role of Development Partners

23. Development partners have responded to the country’s liberalization with a rapid increase in foreign assistance, formulation of new or revised country strategies and programs, and establishment of new country offices with significant staffing increases. ADB will continue to be an active contributor to the government-led aid management system, participating in the cooperation partners group, serving as a development partner co-chair for the electric power and transport sector working groups, and serving as a key member of other sector working groups. ADB will continue to support the government and development partner community in strengthening aid coordination efforts and formulating measures to enhance aid effectiveness. The CPS has been prepared in coordination with other development partners.11 D.

ADB Strategic and Thematic Objectives and Public and Private Sector Operational Priorities 1.

Country Strategy

24. Strategy. The CPS will support the government in achieving sustainable and inclusive economic growth and creating jobs to reduce poverty. ADB’s operations will focus on three strategic areas: (i) improved access and connectivity to address the critical infrastructure needs of Myanmar, to connect rural and urban areas and markets, and to link Myanmar’s businesses with its neighbors and the global marketplace; (ii) strengthened human capital to promote a skilled workforce, increased employment for men and women, and make growth more inclusive, including by enabling the poor and disadvantaged to benefit from economic growth; and (iii) structural and institutional reform to support the transformation and modernization of rural and urban economies, strengthen public and private institutions, and enhance the implementation of ambitious policy reforms.

11

Development Coordination Matrix (accessible from the list of linked documents in Appendix 3).

8 25. Focus. Infrastructure development (energy transmission and distribution, transport infrastructure upgrading, and urban infrastructure) will be the mainstay of ADB operations. To enhance inclusiveness, the infrastructure focus will be complemented by a long-term commitment to supporting education and training (secondary education and TVET), and rural development (agricultural irrigation and value chains along economic corridors). These focus areas are of fundamental importance to the country’s development, which requires access to sound transport networks, electricity, and urban infrastructure; and a skilled workforce to build a modern economy, transform the rural sector and support structural change, boost productivity, create quality jobs, and ultimately improve livelihoods. The CPS will incorporate a regional focus, linked with ADB’s subregional cooperation efforts, to boost connectivity and assist development at the regional, state and local levels. ADB will seek opportunities to promote innovation across its operations, including transformative technologies, international best practice approaches, and process innovation. The strategy provides for a degree of flexibility to respond to evolving needs and priorities in Myanmar’s highly complex and rapidly changing development context. 26. Inclusiveness and sustainability. ADB will support inclusive and sustainable growth (footnote 5) in Myanmar through investments and knowledge support in the areas of (i) transport, power transmission and distribution, and urban development that enhances access to economic opportunities and basic services; (ii) education and training that expands human capacities and promotes better employment outcomes, in particular for disadvantaged groups; and (iii) disaster risk reduction to reduce vulnerability to shocks and the risk that people are forced into extreme deprivation. Because the vast majority of the population, and the poor, resides in rural areas, ADB will prioritize rural development and support to agriculture diversification and productivity enhancement, both on-farm and off-farm, as key drivers of inclusive growth. ADB will support the government in achieving the SDGs, promote participation and consultation with key stakeholders through a context-sensitive approach, and mainstream gender equity in its operations. 27. Alignment. The strategy is aligned with national priorities and policies, consistent with ADB’s policies and strategies, 12 and based on consultations with the government, other development partners, civil society, business and other key stakeholders. It builds on the substantial economic and sector knowledge that has been produced, and effective networks and partnerships that have been established, and seeks to deepen these in the main areas of assistance. It pays careful attention to the local context and subjects all ADB operations to context sensitivity analysis and measures. 2.

Priority Sectors

28. Infrastructure. ADB will prioritize support for addressing Myanmar’s infrastructure deficits in transport, energy, and urban areas, where it will allocate at least 80% of its financial country envelope. To ensure effectiveness and inclusiveness, ADB will pay careful attention to the quality and impact of its infrastructure investments in terms of equal access and benefits for women and men; synergies and partnerships; institutional, legal and regulatory reforms; private sector participation, where feasible; project design and implementation (procurement, financial management, and safeguards); and promotion of income opportunities from civil works 12

ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020. Manila; ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila.

9 activities, including operation and maintenance, for both men and women in local communities. Efforts will be made to make rapid development advances by promoting relevant new technologies and innovation. (i)

Transport. ADB will help to develop rural–urban and regional transport networks to enhance access and connectivity to markets and services for poor and rural communities. ADB activities will significantly reduce transportation costs by modernizing or building segments of regional and national transport corridors, and developing rural road networks. Assistance will be aligned with government investment priorities as well as ongoing government reform initiatives, and build on ongoing ADB support, to modernize and improve the efficiency of the transport sector. ADB will initially focus on helping to further develop the East– West corridor linking Yangon to Thailand, as well as to improve rural road connectivity. Investments will be complemented by supporting policy reform and capacity building, including institutional restructuring; seeking opportunities for private sector participation, where feasible; and driving efforts to enhance the positive impacts of road networks on (rural) communities.

(ii)

Energy. ADB will emphasize power transmission and distribution (sovereign operations) and power generation (nonsovereign operations) in support of the government’s vision of achieving universal electrification, which will be delivered by a commercially operated power industry that supplies reliable and costeffective electricity using private and public sector resources. ADB assistance will be closely aligned with the government’s priorities, including energy and powerrelated plans and policies. ADB’s sovereign operations will emphasize a longterm approach to developing the power transmission and distribution networks, considering the ongoing activities by a number of other development partners in rural electrification and given considerable private sector interest in power generation. In view of recent developments in regional power trade, cross-border transmission lines may be considered. ADB’s nonsovereign operations will proactively pursue opportunities for investments in clean energy. Policy reforms and capacity building, and support for public–private partnerships (PPPs) and regional integration, will continue.

(iii)

Urban infrastructure and services. ADB will support the rehabilitation and development of urban infrastructure and services (including water supply, wastewater, solid waste, urban flood protection, and urban transport), which are essential in addressing sprawling urbanization in terms of basic service delivery and improved public health, and in creating opportunities for private sector employment. Municipal financial management and urban service operations need to be strengthened to improve sustainability and service quality. Modern spatial planning and urban management will be a critical part of ADB interventions to facilitate urbanization as a driving force for economic growth. ADB support will focus on strategic urban locations along selected transport corridors, including Yangon, to maximize the economic benefits of increased traffic and trade by developing the cities as economic activity nodes.

10 29. Rural development. ADB will undertake investments to modernize irrigation and associated asset management, and promote agribusiness value chains along selected economic corridors, in which women play a major role and are major beneficiaries. Reflecting the priority of creating access and opportunities for rural communities and promoting structural change, ADB will carefully calibrate its investments in other core sectors (infrastructure, and education and training) to focus on rural areas where possible. Specifically, enhanced infrastructure and connectivity between rural communities and urban growth centers will improve access to markets and social services. ADB will seek to leverage international climate change and food security-related financing opportunities to promote sustainable land and water management to reduce land degradation, improve agricultural productivity, and conserve biodiversity. Activities in rural access to finance (particularly microfinance and small entrepreneurs, and women’s financial inclusion), climate change adaptation and mitigation, disaster risk management, and private sector development will complement the impacts of the main infrastructure, education, and agriculture investments in rural areas. 30. Education and training. ADB will continue to assist government efforts to enhance the role of the secondary education subsector (SES) and TVET in equipping young women and men for the workplace, as a prerequisite to economic modernization and inclusive growth, including promoting women’s entry into modern sector wage employment. In particular, ADB will focus on supporting cohesive reforms to realign SES and TVET to jointly meet evolving labor force needs. This will include support to the implementation of SES curriculum reforms aimed at improving learning and workforce outcomes for males and females, while ensuring gender sensitivity. ADB will also support the expansion of new competency-based TVET programs targeted at disadvantaged youth and unskilled workers, including promoting entry by females into traditionally male-dominated occupations. 3.

Priority Themes

31. To accelerate the transformation process and support inclusive and sustainable development, the following themes will guide ADB’s Myanmar programs: (i)

Capacity development and governance. ADB will help strengthen public sector capacity and institutional structures necessary for the improved delivery of government services, and the effectiveness of international development assistance. An integrated approach to capacity development will be pursued that links project-specific activities, which were the focus during the interim CPS, to adjustments in institutional structures and systems resulting from sector reforms and evolving government needs. Capacity development initiatives will be improved through better coordination and enhanced delivery methods and approaches. The long-term approach for priority sectors, as pursued under the CPS, will help build the capacity of respective government counterpart agencies. ADB sector interventions will incorporate a focus on institutional strengthening, sector planning, and policy development. Support to legal and regulatory reform in core sectors will strengthen the governance framework and enhance local capacity. Efforts will be made to accelerate the delivery of ADB programs to ensure that assistance achieves expected results in a timely fashion; this will include further work to develop environmental and social safeguards, and to strengthen public financial management, procurement and project implementation capacity both at the national and state and regional levels. ADB will support evidence-based reforms and planning, including by strengthening national statistics and analytical capacity. ADB will also continue to strengthen its

11 own capacity to deliver projects in Myanmar, including through a focus on knowledge work, staff development, and context sensitivity.

13

(ii)

Private sector. ADB will help to harness the private sector as the engine of growth and job creation. In addition to ADB support for the strengthening of infrastructure and human capital (which are binding constraints to private sector development in Myanmar), ADB will work to (i) strengthen the business environment by supporting policy reforms in sustainable macroeconomic and public financial management (including elements of state-owned enterprise reforms and corporatization), streamlining regulations that place a disproportionate burden on small and medium-sized enterprises, and enhancing logistics and infrastructure; (ii) enhance access to finance, particularly for small and medium-sized enterprises, by supporting legal, regulatory and institutional reforms, harnessing of new mobile and digital finance technologies, supporting trade finance, and related capacity building; (iii) leverage private sector finance by supporting the establishment and implementation of a systematic national public–private partnership program, based on a sound policy, legal, and institutional framework, and including capacity building and promotion of project development financing options in key ADB priority activity areas; and (iv) catalyze, structure and fund investments in private companies (nonsovereign operations).13 ADB will continue to maximize synergies between sovereign and nonsovereign operations.

(iii)

Environment, climate change, and disaster risk management. ADB will mainstream environment, climate change, and disaster risk considerations into its sector analysis, planning, and project design, including developing and strengthening Myanmar’s country systems for environmental and social safeguards to promote the environmental and social sustainability of infrastructure projects. 14 ADB will promote the integration of climate change adaptation and disaster risk management, particularly in infrastructure projects, and strengthen institutions and capacities at the central, state and regional, and local levels to reduce climate and disaster risk, and manage residual risk through disaster risk financing and improved preparedness mechanisms. ADB will align its program with Myanmar’s Nationally Determined Contribution; 15 improve coordination and strengthen links between national and regional programs on climate change and the environment; and leverage climate change financing to support climate change mitigation and adaptation, particularly in infrastructure projects and disaster risk management-related interventions.

Priority sectors for ADB’s nonsovereign operations will include (i) infrastructure (energy and power, transport and logistics, water supply, agricultural development, telecommunications, public–private partnerships (PPPs), and urban and social infrastructure and services); and (ii) finance (banking, trade finance, other financial intermediation, and access to finance for small and medium-sized enterprises). 14 Environmental and social safeguard-related capacity will be strengthened at the national and project levels through targeted support to developing and implementing social and environmental impact assessment procedures and guidelines. 15 Government of Myanmar. 2015. Myanmar’s Intended Nationally Determined Contribution. Nay Pyi Taw.

12 (iv)

Regional cooperation and integration. ADB will help Myanmar capitalize on its strategic geographic location by improving connectivity with neighboring countries, largely by strengthening selected economic corridors and enhancing competitiveness. 16 This will introduce a geographic focus to ADB operations. Through its regional programs in the Greater Mekong Subregion (GMS), as well as other subregional economic cooperation programs, ADB will support Myanmar in (i) strengthening value chains along the economic corridors to promote inclusive growth, including by developing urban and related infrastructure, and boosting safe and environment-friendly food production and trade; (ii) advancing regional public health and other regional public goods to address constraints to inclusive development;17 and (iii) supporting sustainable and inclusive business and tourism development, with synergies arising from operations in transport, environmental protection, climate change, and human resource development and employment creation. ADB will also support cooperation among developing member countries, and joint policy exchange and dialogue between Myanmar and other ADB members.

(v)

Gender equity. ADB will mainstream gender equity into its operations by conducting gender analyses and incorporating a gender perspective in all key policy reviews and sector strategies and plans; embodying gender elements in projects where relevant through gender action plans and assistance for their implementation; and supporting efforts to increase women’s access to public infrastructure and services as well as skills development, employment, and entrepreneurship opportunities. ADB will also strengthen collection, analysis, and use of sex-disaggregated data and gender statistics.

32. Context sensitivity and consultations. To enhance development effectiveness, ADB will mainstream into its operations (i) context sensitivity, by incorporating context- and conflictsensitive approaches in all aspects of the CPS implementation; 18 and (ii) stakeholder engagement and partnerships, by maintaining and further strengthening partnerships with development partners and proactively supporting aid coordination mechanisms; and directly engaging and closely coordinating and cooperating with civil society, nongovernmental organizations, and local communities on strategic and operational issues of mutual interest. E.

Priorities for Knowledge Support

33. Knowledge solutions. To help address substantial knowledge gaps and provide knowledge solutions to support government’s efforts to stimulate transformational change, the CPS builds on a knowledge management plan (Appendix 2), which will be regularly updated. ADB will (i) generate and disseminate knowledge solutions tailored to the Myanmar context, ranging from informal on-demand support, to major knowledge products and the introduction of innovation through projects; (ii) advance the use of the knowledge content of operations; (iii) access knowledge from local and international institutions; and (iv) deliver an agreed number of knowledge products each year through a cooperative approach that responds to country needs 16

Initially the GMS East–West Economic Corridor from Yangon to Bangkok via Mae Sot in Thailand, and the GMS Northern Corridor from India to the People's Republic of China through Mandalay. 17 Including projects to address cross-border issues related to HIV/AIDS, malaria, and other communicable diseases. 18 The basic approach subjects all ADB operations to context sensitivity analysis and actions, raises awareness and capacity among key stakeholders of ADB-financed projects, and provides in-depth training and resources for ADB staff operating in conflict-affected areas.

13 and government priorities. ADB will also strengthen dissemination of knowledge to stakeholders regarding ADB operations. IV. A.

STRATEGY IMPLEMENTATION

Indicative Resource Parameters

34. Resources. The indicative special allocation of concessional funds for Myanmar is $1.4 billion for 2017–2020, with an additional indicative $200 million expected from concessional funds earmarked for regional investment projects. The final country allocation will depend on the available commitment authority. The indicative annual Technical Assistance Special Fund allocation is $4 million, and ADB will seek an increasing focus on capacity development as options are explored for project preparation and implementation support to be covered within the project allocations. ADB will seek regional advisory and other funding sources to support TA activities. Building on high levels of ongoing commitments, ADB will continue to proactively seek opportunities for nonsovereign investments (private sector operations). ADB will emphasize catalyzing resource flows, including from the domestic economy, and leveraging ADB resources through concessional funds and commercial cofinancing. 35. Cost-sharing arrangements. Under established agreements with the government, the country cost-sharing ceiling for loan and TA projects remains unchanged. Individual loan and TA projects may be provided with ADB financing for up to 99% of total project costs. 36. Staff resources. ADB’s staffing needs to implement the CPS are evolving as operations expand, project implementation is delegated to the ADB resident mission, and the demand for knowledge work increases. ADB will regularly review and assess staffing needs to ensure an appropriate level and mix of staff are assigned to effectively implement the CPS, taking into account the complex development context and challenges associated with operating a resident mission with offices in two cities (Nay Pyi Taw and Yangon). B.

Implementation Priorities

37. Use of suitable modalities. ADB will provide a range of assistance modalities that respond to the evolution of the country’s needs, capacities, and policy and planning frameworks. In the initial CPS years, ADB will focus on investment projects and closely linked knowledge support and capacity development TA to help Myanmar build foundations for long-term inclusive development. Initial support for system-building via investment projects and TA will also provide a basis for exploring the introduction of additional modalities such as sector development programs, multitranche facilities, and results-based and policy-based lending, as appropriate. ADB will use the Technical Assistance Special Fund and other grant financing sources to support TA projects as well as regional cooperation, and smaller-scale community-oriented activities. To meet the increasing potential for private sector operations, and to leverage private sector finance, loans, equity and guarantees will be provided to private sector sponsors. 38. Portfolio quality improvement. ADB will prioritize portfolio quality and efficiency in the CPS period to ensure development effectiveness. To improve the effectiveness of project implementation, reinforce portfolio quality, and enhance the use of country systems, ADB will (i) further strengthen the implementation of fiduciary safeguards; (ii) selectively and gradually

14 increase the delegation of projects to the ADB resident mission to improve project administration through closer and more intensive cooperation with clients; (iii) improve adherence to ADB project readiness filters and application of advance actions before project start-up; (iv) build absorptive, management, and technical capacity of executing and implementing agencies, including project management units, to speed up internal government approvals and workflows, particularly in procurement and financial management; (v) help develop national consulting and contracting industries; and (vi) maximize synergies between ADB activities. ADB will continue to work closely with the government, Japan International Cooperation Agency, and the World Bank in addressing portfolio implementation issues through the joint country portfolio review process. C.

Monitoring of Results

39. CPS implementation will be monitored using improved country and sector results frameworks that are updated annually during the country portfolio review and country programming missions. 19 Specialists will analyze sector outcomes in collaboration with executing agencies and cofinanciers, and strengthen their monitoring and evaluation capacity, including databases and systems of data collection, storage, and retrieval. A degree of flexibility will be retained, in view of the rapidly evolving development situation in Myanmar. Progress and priorities will be reviewed in the course of annual country operations business plan and country portfolio review processes, and may be adjusted as necessary. D.

Risks

40. Country-level risks. ADB’s operations are exposed to risks associated with Myanmar’s ability to maintain the momentum of the economic reform program; the macroeconomic vulnerabilities and the limited depth of Myanmar’s economic structure; political economy factors; and ethnic and sectarian conflict. ADB, along with other development partners, will help mitigate these risks by supporting the government through technical and financial support, dialogue, and consultation and participation with a wide range of development stakeholders. ADB will continue to work with the government to improve and increase the use of country systems and to strengthen the accountability and transparency of public services. 41. ADB-specific risks. Effective implementation of ADB’s country program will require overcoming, through technical support and effective development partner coordination, capacity and institutional weaknesses and underdeveloped country systems. ADB prioritizes project management and implementation in the CPS period, including measures to mitigate procurement, financial management, and corruption risks in its operations. Moreover, ADB has taken measures that take into account the context-sensitive nature of the environment, where conflict and political economy considerations play an important role in determining development effectiveness; these include adopting a conflict-sensitivity approach, a geographic operational focus under the CPS, and making special efforts to engage and consult with local stakeholders and civil society organizations (including establishment of a civil society advisory group).

19

Country Partnership Strategy Results Framework (Appendix 1).

Appendix 1

15

COUNTRY PARTNERSHIP STRATEGY RESULTS FRAMEWORK Country Development Impact Indicators with which the CPS is Aligned: 1. Proportion of population living below the national poverty line declines significantly by 2021. 2. Growth rate of GDP averages between 7% and 8% between 2017 and 2021. 3. Growth of quality formal sector jobs increases substantially by 2021. CPS Objectives and Related CPS Priority Key Outcomes that ADB Impacts Areas Contributes to Outcome Indicators Improved  Improve  Modern transport  Share of rural households with access to an all-season road access and physical infrastructure and better increases from 36% in 2013 to 41% by 2021 connectivity connectivity connectivity  Transport costs between Yangon and the Thailand border at  Connect urban  Enhanced connectivity Myawaddy reduced by 30% in 2021, from $20 per ton in 2013. and rural areas between domestic and  Households with an electricity connection increased from 34% in international markets  Link business to 2016 to 65% by 2025 regional and  Greater availability,  During 2016–2025, capacity of transmission network increased by global markets reliability, and 700 MVA affordability of electricity  Build the power  During 2016–2025, capacity of rural distribution systems increased supply transmission by 530 MVA and distribution  Increased capacity and  Population with access to safe water increases to 90.0% in 2021 network operational efficiency of (80.6% in 2015) power transmission and  Population with access to sanitation increases to 90.0% in 2021 distribution (79.6% in 2015)  Urban centers serving as growth poles along economic corridors a Strengthened  Build a skilled  General-track education  Myanmar’s ranking in the fifth pillar of the Global Competitiveness b human capital and competitive and TVET strategically Index improves from 134 out of 140 in 2015 to 124 out of 140 in workforce realigned to meet 2025 industry skill needs  Promote  Share of employers that find the education system provides employment in  Decreased skill needed skills rises from 19% in 2014 to 50% in 2025 modern, higher constraints faced by  Share of youth aged 16–18 years in poor households having value-added employers completed at least lower secondary education rises from 30% sectors  Improved and more (29% for females, 31% for males) in 2010 to 60% for both females  Enable the poor equitable learning and males in poor households in 2025 and disoutcomes and workforce  Share of youth aged 18–22 years who are either still in education advantaged to prospects for youth or employed in nonagricultural wage jobs rises from 32% for participate in  Increased flow of skills females and 41% for males in 2014 to 50% for both females and economic from secondary males in 2025

CPS Resources Ongoing portfolio Ongoing sovereign loan and investment grant projects (as of 31 December 2016): Number: 10 projects Amount: $358.35 million Planned operations and contribution: Sovereign Lending: $2.0 billion of concessional OCR and $170 million of cofinancing for 2017–2021. Additional cofinancing will be sought during the CPS period.

16

Appendix 1

CPS Objectives and Related Impacts

CPS Priority Areas growth

Key Outcomes that ADB Contributes to education into the economy  Increased flow of skills from TVET into the economy

Outcome Indicators CPS Resources Technical Proportion of final-year upper secondary education students assistance passing the matriculation exam rises from 29% (31% for females, 28% for males) in 2016 to 75% for both females and males in 2022 Nonlending:  Share of workers aged 18–22 years having completed at least $20.00 million of lower secondary education rises from 33% (33% for females, 32% TASF and $15.25 for males) in 2014 to 60% for both females and males in 2025 million of  Share of workers aged 18–22 years with any TVET in industrycofinancing for related skill areas rises from 0.4% for females and 1.0% for males 2017–2021 in 2010 to 4.0% for females and 5.0% for males in 2025 Promote  Modernized  Improved urban and rural  Increased funds raised from the private sector to fund infrastructure structural and urban and rural services services institutional economies  Stronger resource  At least two successful PPP projects processed by 2021 reform along economic mobilization and private  Commercialization and diversification of non-paddy cropping corridors sector-led growth (oilseeds, pulses, beans, and horticultural crops) increases from  Strengthened  Increased transparency 48% in 2016 to 58% by 2021 public and in public sector  Extension of good agriculture practices and climate-smart c private operations and agriculture provided to 30,000 farmers by 2021, of which 30% are institutions and enterprises women capacity  Enhanced enabling  Irrigation management improved through new system operation  Private sector environment for business manuals; technology pilots; and training of 80 IWUMD staff and development,  Strengthened country 700 leader farmers, including 30% women, in tertiary and fieldincluding direct systems level water management, and their organization into genderd support for PPP sensitive water user groups by 2021, with at least 30% female activities membership of the committee (2016 baseline: no manuals, pilots,  Ongoing policy training, or water user groups; 20% female participation in irrigation e reforms management)  Formulation of new national irrigation policy including arrangements for water user groups and for irrigation system O&M financing ADB = Asian Development Bank; CPS = country partnership strategy; GDP = gross domestic product; IWUMD =Irrigation, Water Resources Utilization and Management Department; MVA = megavolt-ampere; O&M = operation and maintenance; OCR = ordinary capital resources; PFM = public financial management; PPP = public–private partnership; TASF = Technical Assistance Special Fund; TVET = technical and vocational education and training. a Refers to enrolment and quality of education in secondary and higher education as well as training. b World Economic Forum. 2015. The Global Competitiveness Report, 2014–2015: Full Data Edition. Geneva. c The agriculture that sustainably increases productivity, enhances resilience, reduces mitigation where possible, and enhances achievement of national food security and development goals. d The process of establishment of water user groups will involve deliberate and systematic consultations with women to ensure that their requirements are appropriately reflected in the structure and functioning of these groups. e Based on surveys in Natmauk and Chaunmagyi irrigation systems. Source: ADB estimates. 

Appendix 2

17

COUNTRY KNOWLEDGE PLAN A.

Knowledge Needs

1. Opportunities and challenges. After decades of isolation and detachment from mainstream economic and social development, Myanmar is quickly growing and integrating with regional and global economies. The government has the historic opportunity to leverage the country’s strengths and high development potential, including its strategic location in Asia, which offers huge benefits for Myanmar and the region. Myanmar’s development challenges require priority attention in the areas of macroeconomic stability, infrastructure development, human capital, and reforms towards inclusive growth, improved governance, effective public sector management, regional integration, and a conducive business environment. Myanmar’s transformation towards a modern, competitive economy will require massive investment in physical and social infrastructure, as well as a strong focus on capacity building and knowledge solutions. Myanmar can learn from the experiences of other countries (regionally and globally), and accelerate its development by making appropriate use of lessons and innovative approaches. 2. ADB’s approach. The Asian Development Bank (ADB) reengaged with Myanmar in 2012, after an absence of over 20 years, and is working to support Myanmar in addressing binding constraints to development. ADB has been learning from its interactions with the people and organizations in Myanmar, and is incorporating this knowledge into its operations to improve relevance and responsiveness to national needs and priorities. ADB is also offering its accumulated regional and global experience and good practice. This mutual learning approach is being firmly embraced, and is considered an important opportunity by all involved. ADB will need to overcome the challenges of effective knowledge management in the context of a rapid increase in foreign development assistance to Myanmar, which requires close coordination with many development partners. To support Myanmar in capturing and effectively applying knowledge to shape national reforms, ADB is tapping its intellectual assets through a flexible, needs-driven, and tailored approach, emphasizing joint learning and the delivery of intangible know-how as much as formal knowledge products and services, in close coordination with key development stakeholders. 3. Country knowledge plan. The country knowledge plan (CKP) details ADB’s knowledge support as an integral part of the Myanmar Country Partnership Strategy (CPS), 2017‒2021. The CKP describes the context for providing knowledge; outlines the principles for identifying and implementing knowledge activities; and indicates the scope of planned knowledge operations, collaboration with partners, lessons from past operations, and knowledge systems and resourcing. This is ADB’s first CKP for Myanmar. B.

Scope of ADB’s Planned Knowledge Operations 1.

Principles

4. The CKP recognizes the challenges of operating in Myanmar’s complex and rapidly changing development context. It identifies a set of key principles to guide decisions on the identification and implementation of knowledge activities to be delivered. They will enable ADB to amplify the impact of its overall operations. (i)

Operational relevance and alignment. Myanmar knowledge activities will be an integral part of ADB assistance. They will support the medium-term CPS, 2017–

18

Appendix 2

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

5.

2021 and successive annual country operations business plans. ADB knowledge activities will generally derive from the operations cycle and inform improvements in future operations. ADB will proactively review its Myanmar operations, and use that knowledge to improve its program of assistance. Flexibility and responsiveness. ADB will carry out knowledge activities that are responsive to country needs and client priorities. Emphasis will be placed on knowledge activities that maximize synergies between various activities under the CPS, and on encouraging country team members to seek innovative knowledge solutions in their respective areas. Rapid response. ADB will seek to provide rapid response to relevant client requests for information, data, analysis, and other knowledge. Such response will naturally have to take into account staff and budgetary constraints, and work plan commitments. Context sensitivity. As with all development activities in Myanmar, knowledge activities need to be carefully designed so they are appropriate to and reflective of the country context. This includes sensitivity to ethnic and religious issues, the conflict and peace process, and governance issues, such as the government’s interaction with the population. Stakeholder engagement. ADB knowledge activities will aim to enhance cooperation with key stakeholders, including the government, private sector, civil society, media, research institutes, educational institutions, and parliament, and stimulate interaction between these groups. Development partner coordination. ADB will work closely with development partners to coordinate the production and use of knowledge in Myanmar. A strategic, coordinated approach to knowledge support will reduce duplication and enhance policy dialogue with the government. Shared learning. ADB will support cooperation among developing member countries, and joint policy exchange and dialogue between Myanmar and other ADB members. This will include international sharing of selected insights on Myanmar’s own development experience, as well as learning from ADB operations. Measuring outcomes. Knowledge support outcomes will align with ADB sector results frameworks under the CPS. These outcomes may be evaluated against measurable outcome targets. For knowledge creation and dissemination supported through technical assistance (TA), ADB may consider various types of monitoring and evaluation tools to assess the policy influence of knowledge outputs. Focus

5. ADB will prioritize and target the delivery of knowledge products and services and other knowledge solutions in line with three strategic thrusts set out under the CPS: (i) improved access and connectivity, (ii) strengthened human capital, and (iii) structural and institutional reform. ADB will support the government in achieving sustainable and inclusive economic growth and job creation for poverty reduction through a focused, long-term approach in the priority sectors of energy, transport, education and training, urban infrastructure and services, and agriculture and rural development, and will blend investment activities with policy reforms. To accelerate the transformation, ADB’s Myanmar programs will focus on the following priority themes: (i) capacity development and governance; (ii) private sector development; (iii) environment, climate change, and disaster risk management; and (iv) regional coordination and

Appendix 2

19

integration (with a geographic focus on selected economic corridors); and (v) gender equity. Synergies between sovereign operations and private sector operations will be maximized. 6. Access and connectivity. To supplement ADB investments in improved access and connectivity, knowledge products and services will be provided with particular attention to modernizing and improving transport sector effectiveness and efficiency. Energy sector knowledge support will focus on public–private partnerships and regional integration. In supporting urban infrastructure, ADB will help municipalities strengthen their financial management and corporatize urban service operations to ensure service sustainability and quality. Modernized urban management and spatial planning will also be critical elements of ADB’s knowledge solutions. Rural development knowledge support will focus on access to finance, climate change adaptation and mitigation, disaster risk management, and private sector development. 7. Human capital. In strengthening human capital, ADB will prioritize its knowledge support to promote cohesive approaches to realigning the secondary education subsector and technical and vocational education and training (TVET) to jointly meet evolving labor force needs, including the secondary curriculum reforms aimed at improving learning and workforce outcomes, and the expansion of new competency-based TVET programs targeted at disadvantaged youth and unskilled workers. 8. Structural and institutional reform. ADB’s knowledge products and services for structural and institutional reforms cover infrastructure sectors and rural development. These contribute to improving service delivery efficiency, strengthening sector management and policy implementation, building capacity, and fostering evidence-based planning. Capacity development efforts under the CPS will expand from project-specific activities to sector management and national system development. ADB’s knowledge support to private sector development includes policy reforms in sustainable macroeconomic and public financial management (including elements of state economic enterprise reform and corporatization), and the creation of a supportive investment climate and opportunities for private sector participation. 9. Modalities. ADB knowledge support will be provided through reports, briefs, informational notes, study tours, advice on policy reform, capacity building programs, peer-topeer learning, seminars, interviews, blogs, and editorials. The specific knowledge-sharing modality will be chosen on the basis of cost-effectiveness, purpose, target audience, and budget. Implementation will be closely coordinated with ADB’s public communications approach for Myanmar. 10. Organization and leadership. ADB’s Myanmar Resident Mission will play a central role in coordination and outreach activities. However, the plan also identifies opportunities for sector leaders and other departments within ADB to enhance their contribution to knowledge outputs in the country. Close coordination will be undertaken with ADB's Southeast Asia Department as well as with ADB’s non-operations departments, sector groups, and thematic groups to mobilize in-house expertise to respond to the country’s needs for knowledge solutions, in keeping with ADB’s cooperative, “One ADB” approach.20 Staff resources, consultancy budgets, partnerships, and country and regional TA will support the preparation of products.

20

ADB. 2014. Midterm Review of Strategy 2020: Meeting the Challenges of a Transforming Asia and Pacific. Manila.

20

Appendix 2

11. Knowledge users. Knowledge users will differ in their need for knowledge products and services, and their degree of influence and interest. Users include policy-makers at the national and subnational levels including government officials and parliamentarians; opinion-leaders (from civil society, academia, the private sector, and media) who access knowledge products and services to inform public opinion; and the general public, who are becoming increasingly engaged in the political process and in government policy formulations. ADB will take into account the specific needs of different knowledge users while implementing the CKP. C.

Areas of Collaboration with Partners

12. ADB will improve the relevance, responsiveness, timeliness, and accessibility of knowledge by aligning ADB support with the government’s policy, planning, and public investment projects to better inform key decisions, including provision of timely advice and support. ADB will strengthen the management and coordination of its knowledge activities, as guided by the CKP, and undertake an annual update as part of the country operations business plan process. The effectiveness of knowledge support will be improved by strengthening the systematic production, capture, coordination, sharing, and communication of knowledge. 13. ADB is an active member of the country’s development cooperation partner group, which can serve as a vibrant forum for coordination of knowledge support to Myanmar. ADB will proactively explore opportunities to further enhance collaboration with other members of the group in organizing knowledge activities. D.

Resource Allocation

14. Resources to provide knowledge. To maximize the impact of ADB budgetary resources, the resident mission will draw on country and regional TA projects and ADB Institute resources, where relevant to country programming and operations. Knowledge will be drawn from ongoing operations, including knowledge activities supported by analytical and advisory work as part of a loan or a TA project. 15. Institutional arrangement for managing knowledge. The resident mission will establish a knowledge team led by the country director, who shall serve as the ADB knowledge custodian in Myanmar. The team will work closely with sector and thematic specialists, and with knowledge focal points elsewhere in ADB's Southeast Asia Department and in the Knowledge Sharing and Services Center under the vice-president for Knowledge Management and Sustainable Development. The resident mission will improve its information technology and telecommunications infrastructure in support of knowledge management. 16. Monitoring and evaluating knowledge support. Key indicators will be the demand for knowledge products, extent of interaction by the resident mission with key policy-makers in targeted areas, and influence on policy discussions and decisions in the country. More formal monitoring and evaluation of knowledge support will be accomplished as part of the CPS midterm and final review, through reviews as part of the annual country program portfolio review and country programming, and during updates of sector assessment, strategies, and road maps. It will also take into account evaluations of individual knowledge operations. Monitoring and evaluation findings and recommendations will be discussed with key government counterparts and other stakeholders in line with established country practice.

Appendix 3

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/CPS/?id=MYA-2017 1. 2. 3.

Inclusive and Sustainable Growth Assessment Development Coordination Matrix Country Operations Business Plan: Myanmar, 2017‒2019

21


HOW TO IMPROVE ROAD USER CHARGES



HOW TO IMPROVE ROAD USER CHARGES


Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2016 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2016. Printed in the Philippines. ISBN 978-92-9257-485-7 (Print), 978-92-9257-486-4 (e-ISBN) Publication Stock No. RPT168147-2 Cataloging-In-Publication Data Asian Development Bank. Myanmar transport sector policy note: How to improve road user charges. Mandaluyong City, Philippines: Asian Development Bank, 2016. 1. Roads.

2. Road user charges.

3. Myanmar.

I. Asian Development Bank. The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Attribution—In acknowledging ADB as the source, please be sure to include all of the following information: Author. Year of publication. Title of the material. © Asian Development Bank [and/or Publisher]. URL. Available under a CC BY 3.0 IGO license. Translations—Any translations you create should carry the following disclaimer: Originally published by the Asian Development Bank in English under the title [title] © [Year of publication] Asian Development Bank. All rights reserved. The quality of this translation and its coherence with the original text is the sole responsibility of the [translator]. The English original of this work is the only official version. Adaptations—Any adaptations you create should carry the following disclaimer: This is an adaptation of an original Work © Asian Development Bank [Year]. The views expressed here are those of the authors and do not necessarily reflect the views and policies of ADB or its Board of Governors or the governments they represent. ADB does not endorse this work or guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Notes: In this publication, “$” refers to US dollars. Corrigenda to ADB publications may be found at: http://www.adb.org/publications/corrigenda Printed on recycled paper

Contents

Tables and Figures

iv

Foreword

vi

Acknowledgments Abbreviations Executive Summary A Review of Road User Charges in Myanmar The Costs Associated with Road Use User Charging System and Cost Recovery Review of the Ministry of Construction’s Tolled Road Program Possible Improvements in the Road User Charging Framework

viii ix x x x xii xiii xv

Introduction

1

1

The Costs Associated with Road Use 1.1 Cost of Providing and Maintaining the Roads 1.2 Cost of Road Externalities 1.3 Overall Road Costs

3 3 7 8

2

User Charging System and Cost Recovery 2.1 Road Use Fees 2.2 Revenues 2.3 Cost Coverage Analysis

10 10 12 13

3

Review of the Ministry of Construction’s Tolled Road Program 3.1 Overview 3.2 Financial Analysis of the BOT Road Model 3.3 Financial Analysis of the Auction Road Model

16 16 25 28

4

Possible Improvements in the Road User Charging Framework 4.1 New Charging Instruments 4.2 Changes in Existing Instruments 4.3 Revenues and Cost Recovery after the Proposed Changes

29 30 33 34

iii

Tables and Figures

Tables 1 Alternative Toll Structures 2 Road Network Composition, as of 2013 3 Vehicle Fleet and Use Assumptions 4 Actual Truck Traffic Composition, 2013 5 Actual Truck Payloads, 2013 6 Calculated Truck-Axle Damage Factors 7 Road Network Maintenance Costs, 2013 8 Road Network Rehabilitation and Development Needs, 2015–2025 9 Crash Rates in Myanmar, 2012 and 2014 10 Annual Variable Social Costs of Road Use 11 Annual Costs per Vehicle 12 Annual Average Road User Fees, by Vehicle Type 13 Annualized Road User Fees 14 Annual Revenues, by Vehicle Type 15 Cost Coverage—Financial Efficiency Viewpoint 16 Cost Coverage—Economic Efficiency Viewpoint 17 Cost Coverage Ratios, by Vehicle Categories on Each Network 18 Analysis of Road Toll Gate Data, as of FY2013 19 Analysis of Bridge Toll Gate Data 20 Ratios of the Toll Rates for Various Types of Vehicles to the Toll Rate for Cars 21 International Benchmarks for Toll Rates and Structures 22 Benefits per User at Maximum Toll Rates 23 Theoretical Toll Structures 24 Potential Alternative Toll Structures 25 Minimum Traffic Thresholds, by Type of Concession 26 Characteristics of Different Road User Charging Instruments 27 Conventional Method for Denoting Axle Configurations 28 Potential Heavy Vehicle License Fee Rates 29 Potential Fuel Levy Rates and Revenues 30 Total Annual Road-Agency Revenues with Proposed Changes 31 Average Annual Revenues with Proposed Changes 32 Cost Coverage after Proposed Changes—Economic Efficiency Viewpoint 33 Cost Coverage after Proposed Changes—Financial Efficiency Viewpoint 34 Road User Benefits

iv

xvi 4 4 5 5 5 6 7 8 8 9 11 12 13 14 14 15 18 19 20 21 23 24 24 28 30 31 32 33 35 35 35 36 36

Tables and Figuresv

Figures 1 Long-Term Road Network Costs 2 Social Costs Associated with Road Use 3 Coverage of Social Costs, by Vehicle Type 4 Tolls Collected According to Network Length, 2013 5 Toll Rates—International Benchmarks 6 Fuel Levy Revenue and Financing Potential 7 Annual Revenues after Reform 8 Coverage of Social Costs after Reform 9 Distribution of Traffic at Toll Gates (AADT level in % of toll gates) 10 Toll Road Revenues, by Network Segment 11 Toll Rates—Cars 12 Toll Rates—Articulated Trucks 13 Estimated Financial Returns of Build–Operate–Transfer Contracts as a Function of Traffic 14 Initial Investments Financeable at 2016 Build–Operate–Transfer Rates, by Traffic 15 Initial Investments Financeable at Alternative Toll Rates, by Traffic

xi xi xii xiii xiv xvi xvii xvii 17 18 22 22 26 26 27

Foreword

M

yanmar is at a historic milestone in its transition into a market economy and democracy. After decades of isolation and stagnation, the country has, since 2011, been undergoing a fundamental political, economic, and social transformation at unprecedented speed and scope. Achieving the country’s high growth potential will require continued reforms and structural transformation, especially in advancing major investments in infrastructure, developing relevant capacities and skills, and enhancing the business environment. This will enable Myanmar to reach the ranks of upper middle income economies by 2030. Due to massive underinvestment and neglect in recent history, Myanmar’s infrastructure lags behind its Association of Southeast Asian Nations neighbors, and hinders access to markets and social services. High transport costs and associated limited access to markets and services are among the main causes of poverty and regional inequality. Twenty million people still live in villages without access to all- season roads. The questions then are: how can basic transport services be provided to all? What does it take to improve the quality of the transport infrastructure and services for the private sector? How can Myanmar reduce the economic and social costs of transport? The Government of the Republic of the Union of Myanmar is committed to addressing these questions, and the underlying issues. Toward this end, the Government has commissioned from the Asian Development Bank (ADB) the preparation of a Transport Sector Policy Note. The Transport Sector Policy Note takes stock of the transport sector challenges, provides a strategic framework for reforms that could assist Myanmar’s policymaking, and identifies the areas where international financial and technical assistance could make the highest contribution to the development of Myanmar’s transport sector. The Transport Sector Policy Note is composed of nine reports, including this one, and a summary for decisionmakers. The first two—How to Reform Transport Institutions, and How to Reduce Transport Costs—provide an overview and framework for policy reform, institutional restructuring, and investments. These are accompanied by separate reviews of key subsectors of transport: Railways, River Transport, Rural Roads and Access, Trunk Roads, and Urban Transport. These reports summarize and interpret trends on each transport sector to propose new initiatives to develop them. The thematic report Road Safety builds a first assessment of road safety in Myanmar. The thematic report How to Improve Road User Charges is a stand-alone study of cost-recovery in the road sector. The research was organized by ADB and the then Ministry of Transport, with the active participation of the Ministry of Construction and the then Ministry of Railway Transportation. A working group comprising senior staff from these government ministries guided preparation. The work stretched over the period of 24 months, and was timed such that the final results could be presented to the new government that assumed office in April 2016, as a contribution to its policy making in the transport sector.

vi

Forewordvii




Acknowledgments

T


viii

Abbreviations

AADT

annual average daily traffic

ADB

Asian Development Bank

BOT

build–operate–transfer

ESAL

equivalent standard axle load

GDP

growth domestic product

HDM

Highway Design and Management

IRI

International Roughness Index

km

kilometer

MOC

Ministry of Construction

MK

Myanmar kyat

MOTC

Ministry of Transport and Communications

PM

particulate matters

RUC

Road User Charge

RTAD

Road Transport Administration Department

TA

technical assistance

veh-km

vehicle-kilometer

Currency Equivalents (as of December 2014) $ 1 = MK 1,000

ix

Executive Summary

A Review of Road User Charges in Myanmar This note presents a preliminary economic analysis of road user costs and fees, partly drawing from the World Bank’s Road User Charge (RUC) model and analysis framework, and a review of the tolling system. In this note, we: ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

determine levels of financing required to maintain and develop Myanmar’s road network on a sustainable basis; give orders of magnitude of road sector externalities; identify current fees and taxes paid by road sector users cover their costs; analyze the economic and financial efficiency of the Ministry of Construction’s (MOC) tolled road program; and propose financial instruments and levels that would improve cost recovery and enable a higher level of investments.

The Costs Associated with Road Use Myanmar’s road sector investment needs—and costs—reach about $1.45 billion annually. We estimate it would cost $315 million annually (Figure 1) to maintain the entire road network—trunk roads, urban roads and rural roads—on a sustainable basis. Capital works represent an additional annual effort of $195 million for rehabilitation and $0.95 billion for capacity upgrades and other improvements. Necessary road sector spending stands at about $1.45 billion a year (2.3% of Myanmar’s gross domestic product [GDP]). This amount should grow in line with GDP. Road externalities in Myanmar, particularly accidents, represent a cost similar in magnitude. Road externalities represent an annual burden to Myanmar estimated to also be about $1.4 billion. The costs per externality are: (i) road crashes: $800 million, (ii) air pollution: $75 million, (iii) congestion: $350 million, and (iv) CO2 emissions $200 million. The main user categories responsible are motorcycles for road crashes, buses and trucks for pollution, and cars for congestion. The infrastructure and external costs associated with each vehicle are high, justifying a potentially high level of taxation. Road user fees amount only to an annual revenue of $455 million, not counting import dues. The main fees are: (i) road registration tax ($260 million), paid mainly by cars, and (ii) tolls ($150 million), paid mainly by heavy trucks. Total costs per vehicle range from $166 each year for a motorcycle to $15,000 each year for an articulated truck (Figure 2).

x

Executive Summaryxi

Figure 1: Long-Term Road Network Costs 350 300

Maintenance: $315 million annually

Capital: $1.145 billion annually

50 110

$ million

250 200 50

150

Ʒ

Rehabilitation: $195 million

Ʒ

Development: $950 million − Trunk roads: $550 million

100 100

− Rural roads: $165 million

50

− Urban roads: $235 million

0 National highways

State and regional roads

Periodic

Rural roads

Routine Maintenance

Urban roads

¾ Total: $1.45 billion

Administration

Source: Asian Development Bank estimates.

Figure 2: Social Costs Associated with Road Use Annual cost for entire fleet ($ million)

Annual cost per vehicle ($) 9,000

Large buses

206 14,700

Articulated trucks

107

10,900

Heavy trucks

245

12,700

Medium trucks

317

5,700

Light trucks

365

1,500

Cars

605 658

180

Motorcycles 0

20,000 Maintenance

Rehabilitation

Development

Externalities

Source: Asian Development Bank estimates.

0

500 Total

1000


User Charging System and Cost Recovery The amount that Myanmar levies on road users is significant, but still below the costs associated with road usage and network development. Total revenues ($450 million) would need to increase by about $300 million to cover a minimal share of infrastructure costs, and by up to $1 billion to cover all road externalities. The distribution of road charges among users does not reflect the costs associated with their usage. Cars and the largest trucks are disproportionately charged, while small trucks, motorbikes and buses are only covering a fraction of their costs (Figure 3). This particularly discourages using large trucks, even though they are more cost-efficient and damage less pavements. There is also a risk that revenues from the registration tax, which bears mainly on imported cars, could dwindle in case Myanmar starts locally producing cars. Overall, charges on cars could still increase, but those on articulated trucks should not. Charges on other vehicles should rise disproportionately. Road charges on vehicle ownership should not depend on whether the vehicle is produced locally or not (this is the role of customs duties and taxes). The structure of charges is also inefficient from an economic standpoint. The system puts a premium on personal vehicle ownership, but does not charge for the damage vehicles actually cause, or how much they will actually use the roads that are being rehabilitated or upgraded. This unbalance suggests that variable user fees should increase more than fixed fees. Finally, the structure of charges is inefficient at channeling resources to where needs are. Users pay only a small share of their variable or investment costs on rural, urban and state and/or regional road networks. There is no explicit mechanism for channelling fixed revenues (collected centrally) to local networks.

Figure 3: Coverage of Social Costs, by Vehicle Type Annual Fees per Vehicle ($) Large buses

Annual Costs per Vehicle ($)

260

9,000

Articulated trucks

5,900

Heavy trucks

14,700

3,000

Medium trucks

10,900

750

Light trucks

230

Cars

290

Motorcycles

12,700 5,700 1,500

5

0 Annual fees Tolls

180

5,000

10,000

Ownership fees

Maint. = maintenance, Infra = infrastructure. Source: Asian Development Bank estimates.

0

10,000

Maintenance Development

20,000

Rehabilitation Externalities

Maint. Infra (%) (%)

Total (%)

74

18

5

>100

63

40

>100

39

28

35

9

6

34

8

4

>100

49

19

21

12

3


Review of the Ministry of Construction’s Tolled Road Program The Ministry of Construction’s road and bridge tolling programs generate large revenues in the aggregate, but these are concentrated in a small share of the network. The MOC charges tolls along 22,000 kilometers (km) of roads and about 170 bridges, which generated about $150 million in revenues in 2013. However, 80% of the tolled roads have very limited traffic and revenues, only generating 10% of revenues (Figure 4). The “auction” road program seems a particularly inefficient revenue collection mechanism. The tolling structure is very detailed and skewed, so that tolls are excessively borne by large trucks and not enough by cars. The MOC uses 24 vehicle categories, while most countries use five to nine. The rates for cars are well below levels in other countries, but large truck tolls are comparable. This large gap between truck and car toll rates is unseen in other countries, and not justified by the costs associated with each type of vehicle. In this report, we provide two examples of more optimal toll rate structures that correspond to minor and major road improvements. Current build–operate–transfer (BOT) road contracts cannot be implemented in a financially viable manner. The contracts include provisions for overly systematic road widening and for too-low toll rates and on roads having too little traffic. Very long tolling schedules are again uncommon by any standard, but still only marginally improve the financial equilibrium of contracts.

Figure 4: Tolls Collected According to Network Length, 2013 140 120

($ million)

100 Next 30% of network generates $10 million (8% of revenues)

80 60

Last 50% of network generates $2.5 million (2% of revenues)

Next 10% of network generates $18 million (13% of revenues)

40

First 10% of network generates $100 million (77% of revenues)

20 0 0

5,000

10,000 15,000 kilometers

20,000

Source: Data from the Government of the Union of Myanmar, Ministry of Construction; and Asian Development Bank estimates.

xivExecutive Summary

Figure 5: Toll Rates—International Benchmarks (US cents per km) Toll Rates: Cars 25 9.4 8.5 7.8 7.8 6.8 6.9

7.0

4.0 4.0 3.5 3.1 2.2 1.3

U

U

S—

S—

m

m

ax

in

im

im

um

um

0.3

M ya nm a M r au ya c nm tio ar n ro BO ad T s ro ad s

0.1

1.4

Toll Rates: Articulated Trucks 42.6 37.5 35.0

21.9

23.4

22.5

21.0

34.0

21.1 16.3

14.2 9.0

12.0 12.8

9.8 6.6

um

um

ax im

im in

BOT = build–operate–transfer, km = kilometer, US = United States. Source: Asian Development Bank estimates.

U

S—

m

m S— U

M ya nm a M r au ya c nm tio ar n ro BO ad T s ro ad s

4.0

Executive Summaryxv

With higher toll rates, and more reasonable contract provisions, the BOT program could be used much more systematically to finance network improvements. However, the study finds little justification for charging tolls on roads with an Annual Average Daily Traffic (AADT) of fewer than 1,000 vehicles; at that rate, only about 4,500 km roads should be tolled. The MOC’s auction toll model does not share the same flaws, but brings moderate revenues to the MOC at a rather high 20% collection cost, and without applying a clear user-pays principle.

Possible Improvements in the Road User Charging Framework Proposed principles for cost-recovery. To maximize the economic efficiency of the transport system, road user fees should be set equal to the costs of the resources consumed when using the road network. The proposed principles are: (i)

the road fees should never be set below the long-term variable costs of maintaining the road network; (ii) variable road fees should preferentially be used to cover variable costs to align perceived incentives and costs; (iii) where major investments are carried out, road fees should enable adequate cost recovery; (iv) in urban areas particularly, fees should include congestion and other externality costs; and (v) the instruments used for road charging should themselves be simple in design, correspond closely to their destination, and have the lowest administrative cost possible. Measure 1: Create a new heavy vehicle license fee. This fee should be designed to make heavy vehicles pay for the actual damage they cause to pavement due to their weight and axle configuration. It would bring about $80 million each year, ranging from $120 a year for an unmodified medium truck to $2,000–$3,000 for the largest articulated trucks. Measure 2: Create a fuel levy. This fee would make user contribute to road network maintenance and rehabilitation costs. At an initial rate of MK100 per liter (MK380 per gallon), it would bring $325 million in revenues annually (Figure 6). Measure 3: Restructure the road tolling program. We propose to: ƷɆ

ƷɆ ƷɆ

Restructure the toll rate schedule. Two schedules of rates are proposed. The lowest rates would bring similar revenues as on current road BOTs, and the highest ones would bring about twice as much. The structure would be revised to reduce the number of vehicle categories from 26 to seven and reduce the ratio between the toll paid by the heaviest truck to that paid by a car from 70 to 5.6. This new structure shown in Table 1, would raise tolls on cars, and leave them as they are or reduce them for large trucks. Cancel road tolls on roads with low traffic. Potentially, tolls could be cancelled on up to 18,000 km, and kept only on the 4,000 km highways with an AADT above 1,000. Restructure the contracts to align contractual specifications with actual road needs and financial capacity, and better enforce them.

xviExecutive Summary

Figure 6: Fuel Levy Revenue and Financing Potential Revenue potential:

Financing potential:

– 65 Kyat/liter

$220 million

Maintenance costs (non-improved roads)

– 100 Kyat/liter

$325 million

Also rehabilitation (non-improved roads)

– 200 Kyat/liter

$640 million

Also 50% development costs

Source: Asian Development Bank estimates, based on Myanmar’s 2014 vehicle fleet.

Table 1: Alternative Toll Structures Current BOT Rates (MK per mile)

Vehicle Type 1.

Motorcycles

2.

Car

Alternative Toll Schedules New Toll Structurea

0 5–10

1.0

Low Rates (MK per mile)

High Rates (MK per mile)

0

0

30

70

3.

Light truck/medium bus

20–30

1.4

45

100

4.

Medium truck

75–100

3.9

120

260

5.

Heavy truck

150–200

4.1

130

280

6.

Articulated truck

300–350

5.6

180

380

7.

Large bus

50–55

2.5

75

175

BOT = build–operate–transfer, MK = Myanmar kyat. a This is the ratio of the toll paid by a vehicle to the toll paid by a car. Source: Asian Development Bank estimates.

We also propose that the Ministry of Transport and Communications (MOTC) temporarily retain the initial road registration tax, which affects cars, at its current level, but that it consider moderately differentiating it by city and by the level of congestion in the medium-term. The MOTC’s annual road registration tax could gradually be phased out as other fees are introduced. These measures would raise road sector revenues from $450 million annually to $850 million. This would finance a much larger share of needs, and align far more closely to what users pay and to the actual cost to society (Figure 8). Despite the cancellation of tolls, the measures we propose would raise toll revenues to $210 million (Figure 7). The reform would not lead to inflation in bus fares and freight rates if the resources raised are used to improve the road network. Higher resources for road maintenance and rehabilitation would help improve the road network, eventually reducing the costs of operating buses and trucks. This would counterbalance the impact of higher fees on end users. Bus user fares are expected to remain similar, or possibly be slightly reduced. Car user out-of-pocket fees would rise on trunk roads, but not on the rest of the network. Shipping in large trucks should become cheaper by 10%–25%, which would strengthen their competitive advantage over medium-sized trucks. Altogether, the changes brought by higher fees and better roads would be progressive, favoring bus users and rural road users over the more well-off car users and urban dwellers.

Executive Summaryxvii

Figure 7: Annual Revenues after Reform ($ million) Current Fees FY2013

After Reform

y

Initial registration taxes:

$274

$245

y

Inspection fees:

$8

tbd

y

Registration fees:

$22

tbd

y

License fees:

$1

$75

y

Tolls:

$150

$210

y

Fuel levies ($10 c/l)

$0

$320

Total: $455

$850

tbd = to be determined. Source: Asian Development Bank estimates.

Figure 8: Coverage of Social Costs after Reform New Fees ($/year)

Current Fees ($/year) 260

Buses

Maint. Infra (%) (%)

2,050 5,900

Articulated trucks

9,000

3,000

Heavy trucks

6,300

750

Medium trucks Light trucks

230

Cars

290

3,250 1,150 520

5

Motorcycles 0

Ownership fees

12 2,000 4,000 6,000 8,000

0

Annual fees

Registration tax Tolls

Tolls

Maint. = maintenance, Infra = infrastructure. Source: Asian Development Bank estimates.

2,000 4,000 6,000 8,000 10,000

Heavy vehicle fee Fuel levy

Total (%)

>100

89

22

>100

96

61

>100

81

57

>100

38

26

>100

40

20

>100

88

34

50

29

6

Introduction

T ƷɆ ƷɆ ƷɆ ƷɆ ƷɆ

his note presents a preliminary economic analysis of road user costs and fees, partly drawing from the World Bank’s Road User Charge (RUC) model and analysis framework, and a review of the tolling system. In this note, we: determine levels of financing required to maintain and develop Myanmar’s road network on a sustainable basis; give orders of magnitude of road sector externalities; identify current fees and taxes paid by road sector users to cover their costs; analyze the economic and financial efficiency of the toll-road program under the Ministry of Construction (MOC); and propose financial instruments and levels that would improve cost recovery and enable a higher level of investments.

The steps for the analysis are as follows: ƷɆ

ƷɆ

ƷɆ

ƷɆ

Step 1: road costs. Estimate the annual costs of maintaining the entire road network on a sustainable basis. This amount is based on how much should be optimally spent by all agencies managing Myanmar’s roads. Estimate the long-term budgets needed to bring the road network up to an acceptable condition that can be sustainably maintained, and to upgrade and increase its capacity. Estimate the externalities associated with road usage: traffic accidents, pollution and congestion. Based on these costs, prepare an outline showing the fixed and variable costs that should be met by road users, depending on the cost-recovery principles followed. Step 2: user fees. Identify the annual levels of user fees and taxes paid by road users. Determine overall revenues, revenues associated with vehicle ownership and usage by user category, as well as revenues earmarked for the road agencies. Step 3: cost coverage analysis. Determine the current usage levels of the network to identify the users among whom costs should be shared. Compare the fixed and variable fees paid by users with their fixed and variable costs related to each type of network. Step 4: new user fees. Propose user charging principles applicable to Myanmar. Determine the instruments and levels of fees needed to reasonably adhere to these principles.

1

2Myanmar Transport Sector Policy Note: How to Improve Road User Charges

This note has been prepared by Asian Development Bank (ADB) staff. It builds on available data sources, consisting of mainly: road network consistency data from the MOC, 2013 toll revenues for all toll and bridge gates (MOC), standard build–operate–transfer (BOT) contracts, and an account by the Ministry of Rail Transportation (MRT) of its 2013 revenues and levels for all fees managed by the MRT. Estimates of road investment needs are from the National Transport Development Plan (2014) and from early findings of ADB’s technical assistance for Preparing an Asset Management Program for Myanmar Roads (2013). The analysis relies on the RUC model, which includes a number of built-in assumptions about vehicle damage factors, emission factors and maintenance costs, which were calibrated to fit Myanmar’s situation. Despite our efforts, data inconsistency or limitations may limit the validity of some of the results, but we believe not of the general findings and recommendations. Nevertheless, before implementing the recommendations, it may be useful to update the calculations and use more extensive data.

1 The Costs Associated with Road Use Key Findings Myanmar’s road sector investment needs and costs reach about $1.4 billion annually. We estimate that it would cost $315 million annually to maintain the entire road network—trunk roads, urban roads, and rural roads—on a sustainable basis. Capital works represent an additional annual investment of $145 million for rehabilitation and $1 billion for capacity upgrades and other improvements. Necessary road sector spending thus stands at about $1.4 billion a year (2.3% of Myanmar’s GDP). This amount should grow in line with the GDP. Road externalities, particularly accidents, cost Myanmar about the same amount as its annual roadrelated investments. An annual burden estimated at about $1.4 billion. These externalities are made up of: (i) road crashes, $800 million; (ii) air pollution, $75 million; (iii) congestion, $350 million; and (iv) CO2 emissions, $200 million. The main user categories responsible for these costs are motorcycles for road crashes, buses and trucks for pollution, and cars for congestion. The infrastructure and external costs associated with each vehicle are high, justifying a potentially high level of taxation. Road user fees amount to an annual revenue of only $455 million, not counting import dues. The main fees are the road registration tax ($260 million), paid mainly by cars, and tolls ($150 million), paid mainly by heavy trucks. Total costs per vehicle range from $180 each year for a motorcycle to $14,500 for an articulated truck.

1.1

Cost of Providing and Maintaining the Roads

Myanmar has a large road network to maintain, most of which is earthen or gravel. Myanmar’s registered road network was 143,246 kilometers (km) in 2013. Paved roads represent 22% of the total. These are mostly of bituminous penetration macadam surfacing. Gravel and macadam roads account for 27% of the total. Half of the registered network is earthen. The national, state, and regional network is managed by the MOC. Authority for the national road network is with the central government, while that for state and regional road networks is with the provincial government. Rural roads are managed by the Department of Rural Development, again under the local government authority. Urban streets are managed by city development committee (Table 2). The network is generally lightly trafficked, with motorcycles responsible for a large share of the fleet and traffic. We estimate that Myanmar’s 4.6 million vehicles generate a total 31.5 billion vehicle-kilometers per year, requiring 3.2 billion liters of fuel (2.7 million tons) (Table 3).

3


Table 2: Road Network Composition, as of 2013 Concrete/ Bituminous

Road Category National road network

Gravel/ Macadam (“metalled”)

Earth

Total

12,345

5,141

2,017

19,503

State and regional road network

5,502

6,241

7,837

19,580

Rural roads

9,617

26,445

60,848

96,910

Urban streets and avenues

4,531

723

1,999

7,253

31,995

38,550

72,701

143,246

Total

Note: The breakdown for half of the rural road network is missing. The composition was assumed to be similar to that of the other half of the rural road network. Source: Government of the Union of Myanmar, Ministry of Construction.

Table 3: Vehicle Fleet and Use Assumptions Annual Distance Driven (km)

Annual Vehicle Utilization (million vehicle km)

Annual Fuel Consumption (million liter)

Annual Loading Impact (million ESAL km)

Vehicle Type

Number of Vehicles

Motorcycles

3,975,824

4,300

15,394

419

0

457,501

22,000

8,696

1066

0

84,977

45,000

2,834

316

932

14,615

65,000

1,625

315

12,289

Heavy trucks

26,345

65,000

1,463

498

5,574

Articulated trucks

12,307

70,000

510

257

2,308

Buses

23,134

45,000

1,026

323

1,748

Total

4,594,703

31,546

3,193

22,850

Cars Light trucks Medium trucks

ESAL = equivalent standard axle load, km = kilometer. Note: Detailed data on traffic is available from toll gates for most of the national roads. It indicates that 71% of the national paved network is lightly trafficked at fewer than 500 vehicles per day (not including motorcycles), 15% has traffic between 500 and 2,000 vehicles per day, 12% between 2,000 and 5,000 per day, and only a few short sections have traffic above 5,000 vehicles per day. The average share of heavy vehicles is 22%. Vehicle usage on the rest of the network was assumed based on casual observations, and manually calibrated to tally with usage figures computed based on the total vehicle fleet (data available from the government) and on annual vehicle mileage (surveys on usage available for trunk roads). These assumptions do not impact total maintenance needs, and only marginally affect figures by category of network. The assumptions regarding vehicles were based on the typical vehicles in use in Myanmar. Totals may not add up due to rounding. Source: Asian Development Bank estimates based on data from the Government of the Union of Myanmar, Road Transport Administration Department.

Overloading is common but it is mainly an issue for medium sized trucks. Based on the stated loads by truck drivers responding to surveys, we estimate that about 21% of trucks are overloaded. The average axle load of a truck is 4.4 times the standard axle load of 18 kips, which is high. Of the medium-sized trucks, 25% are overloaded, and their overloading is severe: for overloaded medium-sized trucks, the overloading ratio is 58%. Larger trucks are less frequently overloaded, and their overloading is less severe. Actually, using a higher axle load of 11.5 tons, medium-sized trucks would still be considered overloaded, but most large trucks would not. Only 6% of trucks actually carry more than 30 tons of goods. Medium-sized trucks (two-axle) account for 22.4% of movements of goods, but cause 60% of the damage to road pavement (Tables 4, 5, and 6). Only 9% of trucks travel empty, and the average loading ratio is 91%, which is very high by international standards. The ratio is less on international corridors (e.g., 62% on the Greater Mekong Subregion East–West Corridor connecting to Thailand).

The Costs Associated with Road Use5

Table 4: Actual Truck Traffic Composition, 2013

Vehicle Type

Percentage of Truck Movements

Two-axle truck (less than 2 tons) Two-axle truck (more than 2 tons)

Percentage of Tons Movements

Average Truck Capacity (tons)

Average Load (tons)

Gross Vehicle Weight (tons)

Legal Maximum Load (tons)

Loading Ratio (%)

Empty Trips (%)

5

1

1.5

1.3

3.3

4

87

18

43

22

7.1

6.4

11.4

15

90

12

Three-axle truck

16

16

14.0

12.7

19.7

19–21

91

6

Four-axle truck

23

31

17.6

16.5

26.5

25

94

5

Trailer truck

13

30

29.8

27.7

39.7

33–48

93

5

13.3

12.3

91

9

Fleet average

Note: The computations reflect a sample of 5,500 roadside truck surveys carried out on trunk roads as part of the preparation of the National Transport Development Plan. Source: Asian Development Bank estimates based on data from Japan International Cooperation Agency (JICA). 2014. The Survey Program for The National Transport Development Plan In The Republic of The Union of Myanmar. Naypyidaw.

Table 5: Actual Truck Payloads, 2013 30 Tons (%)

Average Payload (%) 1.3

0

0

0

31

44

25

0

0

6.4

Three-axle truck

9

14

69

8

0

12.7

Four-axle truck

5

2

72

20

1

16.5

Trailer truck

5

2

11

34

47

27.7

Fleet average

21

22

40

11

6

12.3

Source: Asian Development Bank estimates based on data from Japan International Cooperation Agency (JICA). 2014. The Survey Program for The National Transport Development Plan In The Republic of The Union of Myanmar. Naypyidaw.

Table 6: Calculated Truck-Axle Damage Factors

Vehicle Type Two-axle truck (less than 2 tons)

Gross Vehicle Weight (tons) 3.3

Share Overloaded on 10-Ton Axle (%)

Average Overload (%)

Average ESAL

0

0

0.2

Share of Total ESALS (%) 0.2

ESAL for Legal Loads

Share Overloaded on 11.5-Ton Axle (%)

0.01

0.2

Two-axle truck (more than 2 tons)

11.4

25

58

6.7

60

2.6

18

Three-axle truck

19.7

40

15

3.6

12

1.0

8

Four-axle truck

26.5

13

7

3.5

17

0.6

5

Trailer truck

39.7

6

12

4.1

11

2.7–5.3

1

21

31

4.8

100

Fleet average

10

ESAL = equivalent standard axle load. Note: The overloaded share was computed based on the legal 10 tons per axle and, as an alternative, 11.5 tons per axle. The ESAL computations were carried out using the methodology of the American Association of State Highway and Transportation Officials for typical truck and trailer configurations, assuming the use of tandem or tridem axles. Source: Asian Development Bank estimates based on data from Japan International Cooperation Agency (JICA). 2014. The Survey Program for The National Transport Development Plan In The Republic of The Union of Myanmar. Naypyidaw.


Long-term road network maintenance costs reach $315 million annually. We estimate this is the cost to maintain Myanmar’s road network, not counting the costs of bring the network to a maintainable condition. Of the total, $150 million is for the network managed by the MOC, $110 million for rural roads, and $50 million for urban roads (Table 7). Also, 30% of the costs ($94 million) would be variable, while other costs are fixed. Again, the total costs does not include the rehabilitation the costs of necessary rehabilitation. And actual routine maintenance needs are higher, because of the degraded condition of the road network. Road network rehabilitation and development costs are about $1.15 billion annually. Road network rehabilitation needs were estimated to be $195 million, and upgrade needs require $950 million on an annualized basis. Overall, the total road rehabilitation and development needs are estimated at $1.15 billion on an annualized basis (Table 8)—about 2.3% of Myanmar’s GDP. This amount is an annuity corresponding to the 2013 situation: it was calculated based on needs, assuming that resources would rise in line with GDP.

Table 7: Road Network Maintenance Costs, 2013 ($ million per year) Road Network

Road Type

Routine Maintenance

Periodic Maintenance

Fixed

Variable

Total

Fixed

Variable

Total

Administration and Other

Total Costs

National roads

Paved

10.5

0.4

10.8

39.0

27.4

66.4

5.1

82.3

Gravel

2.6

2.6

5.2

4.7

1.9

6.6

2.1

13.9

Earth

0.5

0.7

1.2

0.0

0.0

0.0

0.8

2.0

Total

13.6

3.7

17.2

43.7

29.3

73.0

8.0

98.2


Paved

4.7

0.1

4.8

12.3

10.7

23.0

2.0

29.7

Gravel

3.1

3.3

6.4

5.7

2.4

8.1

2.2

16.8

Earth

1.0

1.4

2.4

0.0

0.0

0.0

2.8

5.2

Total

8.8

4.7

13.5

18.0

13.1

31.1

7.0

51.6

Rural roads

Paved

8.2

0.1

8.3

20.4

17.7

38.0

1.5

47.9

Gravel

6.6

4.0

10.6

24.0

2.4

26.4

4.1

41.1

Earth

7.6

5.3

12.9

0.0

0.0

0.0

9.4

22.3

Total

22.4

9.4

31.8

44.4

20.1

64.5

15.0

111.3


Paved

4.3

0.4

4.7

28.7

12.5

41.2

3.2

49.1

Gravel

0.2

0.1

0.3

0.7

0.1

0.7

0.5

1.5

Earth

0.2

0.2

0.5

0.0

0.0

0.0

1.3

1.8

Total

4.7

0.7

5.4

29.4

12.5

41.9

5.0

52.3

All roads

Paved

27.6

1.0

28.6

100.4

68.2

168.6

11.8

208.9

Gravel

12.5

10.0

22.5

35.0

6.8

41.9

8.9

73.3

Earth

9.3

7.6

16.9

0.0

0.0

0.0

14.3

31.2

Total

49.4

18.6

68.0

135.5

75.0

210.5

35.0

313.4

Notes: Fixed routine maintenance costs were assumed to be $850 per kilometer (km) for paved roads, $250 to $500 per km for macadam or gravel roads, and $125 to $250 for earth roads. Variable routine maintenance costs were assumed to be mainly for patching paved roads and grading unpaved roads. Periodic maintenance costs (overlays, seals, regraveling) were determined based on the optimal strategy for maintaining each road category in the network in good condition. (This is predefined in the model, and draws from an HDM-IV analysis.) Totals may not add up due to rounding. Source: Asian Development Bank estimates using a road user cost model developed for this study, based on data provided by the Government of the Union of Myanmar, Ministry of Construction.


Table 8: Road Network Rehabilitation and Development Needs, 2015–2025 Annualized Investment Needs

Road Network

Length (km)

Rehabilitation ($ million per year)

Upgrade and Construction ($ million per year)

Total ($ million per year)

National roads

19,500

150

450

600


19,580

45

100

145

Rural roads

96,910

165

165

8,010

235

235

144,001

195

950

1,145

Urban streets and avenues All roads

km = kilometer. Notes: The rehabilitation of a large share of the paved road network or, rather, its upgrading to asphalt concrete surfacing, is necessary for raising the network to a maintainable level. Urban road investments draw from the Yangon Urban Transport Master Plan ($230 million per year annualized), and we assume an additional 50% budget for other cities. The total cost of upgrading the rural roads was calculated to be $12 billion, which can only be met in the long run. The budgets for 2014 were used as a baseline. There was no base for determining the cost of upgrading the state and regional road network. Because traffic is lower there than on the national network, a $100 million annual requirement was considered. Source: Asian Development Bank estimates.

1.2

Cost of Road Externalities

The cost of road externalities appears to be comparable to that of road maintenance and investment needs. Road usage generates negative externalities in all countries, including Myanmar. These are costs imposed by road users on other users (e.g., congestion) and on the rest of society (e.g., pollution, accidents involving pedestrians) without being compensated by monetary payments. This study develops rough estimates of these costs. The total cost of all road-generated externalities is estimated to be $1.5 billion. ƷɆ

ƷɆ

ƷɆ ƷɆ

Road Crashes. The total cost to society of road crashes is estimated to be about $800 million. Road crashes impose long-term costs to society in the form of direct material damage, medical care and loss of future production. Based on trends observed in the first half of 2014, road users were involved in 13,400 accidents, which caused 23,400 injuries and 3,900 fatalities. The international benchmarks used in this study are the cost to society of 70 times GDP per capita for fatalities ($80,500), 17 times GDP per capita for injuries ($19,550), and $1,500 for accidents. Air Pollution. The total health costs associated with air pollution are estimated to be $75 million. Vehicle emissions are a major cause of respiratory diseases in urban areas. We estimate that in 2014, vehicles emitted 93,000 tons of NO2 and 4,200 tons of PM10, which are leading factors contributing to air pollution. A unit cost of $970 per ton of NO2 and $23,260 per ton of PM10 was generated in urban areas. These unit costs were estimated based on standard impact values for developing countries adjusted for the density of Yangon and Mandalay, and for the cities’ levels of GDP per capita. Standard emission factors corresponding to a moderately old vehicle fleet were considered, and combined with the estimates of vehicle usage in urban areas to derive total emissions. Congestion. Urban road congestion costs are estimated to be about $350 million a year. This is likely an underestimate, and should thus be considered valid only with regard to its magnitude. CO2 Emissions. Myanmar’s vehicles are estimated to burn 3.2 million tons of fuel which emit 8 million of tons of CO2 a year. Assuming a cost of $25 per ton, the associated cost to global society would be $200 million.


Table 9:Crash Rates in Myanmar, 2012 and 2014

Vehicle Type

Number of Crashes in 2012

Number of Fatalities in 2012

Number of Injuries in 2012

Crash Rates (per 100 Million veh-km)

Fatality Rates (per 100 Million veh-km)

Injury Rates (per 100 million veh-km)

Motorcycles

5,562

1,393

8,987

57

15

94

Cars

1,452

349

2,602

20

5

36

Light trucks

605

254

1,051

21

9

36

Medium trucks

238

100

438

21

9

38

Heavy trucks

202

85

105

21

9

11

72

30

70

21

9

20

Articulated trucks Buses

699

234

1,909

106

37

295

Total 2012

8,830

2,445

15,162

38

11

66

Total 2014

13,413

3,917

23,429

90

8

51

Veh-km = vehicle-kilometer. Notes: 1. The figures for 2012, including the breakdown by vehicle, are derived from government data. 2. The figures for 2014, also derived from government data, are based on trends during the first 8 months of that year. Source: Asian Development Bank analysis of data from the Government of the Union of Myanmar, Road Transport Administration Department.

1.3

Overall Road Costs

Altogether, the annual cost to society associated with road usage reached $2.9 billion in 2013. We estimate that the total cost to the government (infrastructure costs) and to society (externalities) associated with the road sector was $2.9 billion in 2013. Of this total, $1.5 billion covered short-term variable costs—costs that were directly caused by road users when they traveled on the roads. This represents 2.5% of Myanmar’s GDP (Table 10). Only a fraction of these costs were due to road damage. Most were due to externalities. Road crashes were the largest external cost of road use in Myanmar. The remainder ($1.36 billion) was either fixed (e.g., fixed network costs) or corresponded to investments that would benefit future road users.

Table 10:Annual Variable Social Costs of Road Use ($ million) Costs

Total Costs

Short-Term Variable Costs

Fixed and Infrastructure Costs

Maintenance costs

315

95

220

Rehabilitation costs

195

…

195

Upgrade and construction costs

950

…

950

Road crashes

800

800

…

Air pollution

75

75

…

Congestion

350

350

…

CO2 emissions

200

200

…

2,885

1,520

1,365

Total

… = data not available. Source: Asian Development Bank estimates based on a road user cost model developed for this study.


Costs by vehicle. It is useful to consider how much these road costs represent for each vehicle on a yearly basis to measure the potential amount that should be recovered from road users. Variable maintenance costs and externalities are directly related to the use of the vehicles. Allocation rules concerning users are needed for fixed costs and investments, as there is no direct link between road usage and these costs. Also, only part of the fixed costs should be financed by current road users. The current rules are: ƷɆ

ƷɆ

ƷɆ

Fixed maintenance costs are allocated 100% to current road users, with half based on utilization (in vehicle-kilometers), and half on the road space used (drawing from standard passenger-carequivalent factors). Rehabilitation costs are allocated for 80% to current road users, on the assumption that part of them can be financed by debt. Costs are split equally according to the loading impact and road space used. Upgrade and construction costs are allocated for 65% to current road users, on the assumption that some have different requirements and because of this should not be financed by road users (poverty alleviation, urban development) and because debt and equity instruments are available. Costs are split between 20% for loading impact (representing incremental pavement costs) and 80% for road space use.

Total road infrastructure and externality costs per vehicle range from $183 a year for a motorcycle to $14,700 for an articulated truck. Based on this methodology, we estimate that road costs represent on an annual basis (Table 11): ƷɆ ƷɆ ƷɆ

short-term variable maintenance costs only: $9 for a car and $1,020 for a heavy truck; all infrastructure costs: $600 for a car and $7,760 for a heavy truck; and all costs and externalities: $1,530 for a car and $10,930 for a heavy truck.

Table 11:Annual Costs per Vehicle ($ per vehicle per year)

Vehicle Type

Variable Maintenance Costs

Fixed Maintenance Costs

Rehabilitation Costs

Upgrading Costs

Externalities

Total

Motorcycles

3

21

3

14

144

183

Cars

9

150

50

380

930

1,530

80

590

350

1,820

2,950

5,790

Medium trucks

1,200

950

1,850

4,520

4,220

12,740

Heavy trucks

1,020

880

1,690

4,170

3,170

10,930

Articulated trucks

1,160

990

2,030

5,200

5,360

14,730

230

330

280

1,420

6,760

9,020

Light trucks

Large buses

Source: Asian Development Bank estimates based on the road user cost model developed for the study

2 User Charging System and Cost Recovery Key Findings The amount that Myanmar levies on road users is significant, but still below the costs associated with road usage and network development. Total revenues ($450 million) would need to increase by about $300 million to cover a minimal share of infrastructure costs, and by up to $1 billion to cover all road externalities. The distribution of road charges among users does not reflect the costs associated with their use. Cars and the largest trucks are disproportionately charged, while small trucks, motorbikes, and buses are only covering a fraction of their costs. This discourages the use of large trucks, even though they are more cost-efficient and damage less pavement. There is also a risk that revenues from the registration tax, which affects mainly imported cars, could dwindle if Myanmar starts producing cars locally. Overall, charges on cars could still increase, but those on articulated trucks should not. Charges on other vehicles should rise proportionately. Road charges on vehicle ownership should not depend on whether the vehicle is produced locally or not (this is the role of customs duties and taxes). The charging system is also inefficient from an economic standpoint. The system puts a premium on personal vehicle ownership, but does not charge for the damage vehicles actually cause, or how much drivers will actually use the roads that are being rehabilitated or upgraded. This unbalance suggests that variable user fees should increase more than fixed fees. Finally, the charging system is inefficient at channeling resources to where the needs are. Users in particular pay only a small share of their variable or investment costs on rural, urban and state and regional road networks. There is no explicit mechanism for channelling fixed revenues (collected centrally) to local networks.

2.1

Road Use Fees

Myanmar’s road user charging system involves a number of instruments managed by different actors. The fees imposed on road users are as follows: ƷɆ

10

Customs duties and taxes. They are imposed on all vehicle imports based on standard cost, insurance, and freight (CIF) values. The average duty rate considered is 30% for cars (except taxis), and 3% for other vehicles. The average tax rate considered is 25% for cars and taxis, and 5% for other vehicles. Actual customs duty rates for cars can be much higher for large or luxury vehicles. The Ministry of Commerce collects these taxes.

User Charging System and Cost Recovery11

ƷɆ

ƷɆ ƷɆ ƷɆ ƷɆ

Initial road registration tax. This tax is imposed on all newly imported cars and taxis. It ranges from 30% to 80% of the CIF value, depending on the scheme under which it was imported. Our understanding is that this tax is collected by the Road Transport Administration Department (RTAD), which is under the Ministry of Rail Transportation (MRT), but we were unable to confirm this. Registration fee. This is an annual fee, ranging from $5 to $40 annually, depending on the type of vehicle and on whether it is the initial registration or a renewal. The RTAD collects this fee. Inspection fee. This is an annual fee, ranging from $0.5 to $10 annually, depending on the type of vehicle, and on whether it is the initial or renewal registration. The RTAD collects this fee. Business license fee. This is a $1 to $8 annual fee collected by the MRT’s Transport Planning Department on all passenger and cargo vehicles. Road tolls. Most of the paved national roads and bridges are tolled by the Ministry of Construction (MOC), either under road concession schemes or through “auction” schemes. Section 3 analyzes the program in detail.

Altogether, the fees imposed on users are negligible for motorcycles, moderate for cars and buses, and significant for large trucks. The transport-related fees paid each year by a road vehicle owner is $5 for a motorcycle, about $290 for a car, $3,100 for a heavy truck, $5,930 for an articulated truck, and $420 for a large bus (Table 12).

Table 12: Annual Average Road User Fees, by Vehicle Type (%) Vehicle Type Motorcycles

Customs Duty

Customs Tax

Initial Registration Tax

Initial Inspection Fee

Renewal Inspection Fee

Initial Registration Fee

0.0

0.0

0.0

0.5

0.5

1.0

150.0

125.0

250.0

0.5

5.2

1.0

Taxis

18.8

156.3

312.5

0.7

5.2

4.4

Light trucks

20.8

34.7

34.7

0.3

5.2

1.0

Medium trucks

33.0

55.0

55.0

0.4

10.3

1.5

Heavy trucks

120.0

200.0

200.0

0.6

10.3

3.4

Articulated trucks

240.0

400.0

400.0

0.6

10.3

4.6

60.0

100.0

100.0

0.5

10.3

1.5

Registration Renewal Fee

Initial License Fee

License Renewal Fee

Total

Total Transport

Cars

Buses Vehicle Type Motorcycles

Tolls

2.3

0.0

0.0

0.0

5.0

5.0

Cars

14.4

0.0

0.0

17.0

563.0

288.0

Taxis

30.9

0.3

2.1

0.0

531.0

356.0

5.2

0.3

4.1

188.0

294.0

239.0

Medium trucks

38.1

0.4

6.2

672.0

872.0

784.0

Heavy trucks

38.1

0.9

8.2

2,847.0

3,429.0

3,109.0

Articulated trucks

38.1

0.9

8.2

5,472.0

6,575.0

5,935.0

Buses

30.9

0.9

8.2

275.0

587.0

427.0

Light trucks

Note: Initial fees are annualized based on the assumed remaining life of vehicles after importation. Source: Asian Development Bank estimates utilizing a road user cost model developed for the study. The road user fee statistics were derived from the Ministry of Construction toll revenue data, as well as Road Transport Administration Department and Planning Department data.


2.2 Revenues We estimate that total revenues generated by road users reached $455 million in 2013. Total government revenues associated with the road sector was higher, at $742 million a year. However, the customs duties and taxes are not road user fees, per se. The rates are similar to rates for other luxury item imports, and can be considered as general taxation. Only $455 million can be considered as road user fees, divided as follows: $274 million for the initial road registration tax (90% paid by cars), $31 million for various fees, and $150 million for tolls (91% paid by trucks [Table 13]). The charging system mainly affects cars and large trucks. For the most part, it charges cars for accessing the road network, and trucks for using it. The system is useful to the analysis, as one can differentiate between “access” fees, which are fixed based on ownership, and usage fees, which vary with actual use (only tolls in the case of Myanmar). One-time “access” fees on car and taxi purchases generate 55% of total road revenues. User fees on trucks generate 29.5% of total road revenues (Table 14).

Table 13: Annualized Road User Fees ($ million per year) Initial Registration Tax

Initial Inspection Fee

Vehicle Type

Customs Duty

Customs Tax

Motorcycles

0.0

0.0

0.0

3.6

Cars

118.2

98.5

197.0

Taxis

3.0

25.0

50.0

Light trucks

6.6

11.0

Medium trucks

2.5

Heavy trucks Articulated trucks Buses Total

Renewal Inspection Fee

Initial Registration Fee

1.6

7.2

0.4

1.2

0.7

0.1

0.3

0.6

11.0

0.1

0.3

0.3

4.1

4.1

0.0

0.2

0.1

4.0

6.7

6.7

0.0

0.2

0.1

1.7

2.9

2.9

0.0

0.1

0.0

1.4

2.3

2.3

0.0

0.2

0.0

137.4

150.5

274.0

4.2

4.1

9.0

Vehicle Type

Registration Renewal Fee

Initial License Fee

License Renewal Fee

Tolls

Total ($ per year)

Total Transport ($ per year)

Motorcycles

5.2

0.0

0.0

0.8

18.3

18.3

Cars

3.3

0.0

0.0

5.3

424.6

207.9

Taxis

1.8

0.0

0.1

0.0

81.0

53.0

Light trucks

0.3

0.1

0.3

16.0

46.0

28.4

Medium trucks

0.7

0.0

0.1

16.7

28.6

22.1

Heavy trucks

0.7

0.0

0.2

63.8

82.5

71.8

Articulated trucks

0.2

0.0

0.1

39.9

47.8

43.2

Buses

0.6

0.0

0.2

6.4

13.4

9.7

Total

12.8

0.1

1.0

148.9

742.2

454.4

Notes: 1. Initial fees apply only on new vehicles. 2. The assumptions underlying this table reflect the current state of the fleet, which is being quickly being renewed and expanded. 3. Toll data are actuals, based on traffic volumes recorded at each toll gate. These totals correspond to the total receipts at the toll gates. 4. The toll roads considered here do not include expressways because of the lack of accurate revenue data. Source: Asian Development Bank estimates.


Table 14: Annual Revenues, by Vehicle Type ($) Road Fees ($ per vehicle per year) Vehicle Type

Vehicle Ownership Fees

Motorcycles

2

3

Cars

252

Taxis Light trucks Medium trucks

Annual Fees

Share of Total Revenues (%)

Variable Fees

Vehicle Ownership Fees

Annual Fees

Variable Fees

0

2.4

1.5

0.2

20

16

44.0

1.0

1.1

318

38

0

11.3

0.5

0.0

36

14

177

2.6

0.2

3.3

57

55

644

0.9

0.2

3.6

Heavy trucks

205

57

2,773

1.5

0.2

13.8

Articulated trucks

406

57

5,412

0.7

0.1

8.8

Buses

103

49

265

0.5

0.2

1.4

67.3

4.2

28.5

Total

Source: Asian Development Bank estimates based on the road user cost model developed for this study.

2.3 Cost Coverage Analysis We propose to analyze user charge cost coverage from a financial and economic standpoint. Our analysis starts with aggregate numbers. It then analyzes coverage ratios by vehicle category and by the parts of the road network. Two separate benchmarks are proposed to analyze whether users pay for the costs they cause: ƷɆ

ƷɆ

Financial efficiency: comparing total road user fees with part or all of the infrastructure costs. This tells the extent to which users are financing a minimum share of network maintenance and development. Economic efficiency: comparing variable road user fees with road users’ social short-term variable costs (variable maintenance costs and externalities). This tells whether road use is correctly priced from an economic efficiency viewpoint, i.e., whether it gives incentives that maximize economic benefits to society.

Financial efficiency viewpoint. From a financial viewpoint, road-related fees ($450 million) cover road network maintenance and rehabilitation ($520 million). Altogether, road users cover 45% of their fair share of infrastructure costs ($1 billion). Cars and large trucks are close to covering their fair share of costs, while smaller trucks, motorcycles, and buses are undercharged (Table 15). Economic efficiency viewpoint. From an economic standpoint, variable user charges adequately cover the damage vehicles cause to the roads, but only a small fraction of road externalities (Table 16). Articulated trucks are the only vehicles that cover close to all their costs, and they appear disproportionately charged in comparison with other vehicles. Medium trucks do not even cover their variable maintenance costs, which are high because of overloading. Motorcycles, buses, and, to a lesser extent, cars are the least charged for the damage they cause. The efficiency of the system in providing incentives to use the network is limited by the fact that tolls apply only to the national network. This implies that articulated trucks are charged higher for the use of the national road network, but lower for the use of the other road networks. The charging system insufficiently charges other types of vehicles.


Table 15: Cost Coverage—Financial Efficiency Viewpoint Total Annual User Fees ($ per vehicle) 5 287 228 756 3,035 5,875 418

Vehicle Type Motorcycles Cars Light trucks Medium trucks Heavy trucks Articulated trucks Buses Road user fleet

Share Covered by Total User Fees (%) Maintenance and All Allocated Maintenance Costs Rehabilitation Costs Infrastructure Costs 19 18 12 182 139 49 45 30 11 37 20 9 163 86 40 277 142 63 76 51 19 143 86 45


Table 16: Cost Coverage—Economic Efficiency Viewpoint

Vehicle Type Motorcycles Cars Light trucks Medium trucks Heavy trucks Articulated trucks Buses Road user fleet

Annual Variable User Fees ($ per vehicle) 0 17 253 672 2,847 5,472 279

Shares Covered by Variable User Fees (%) Variable Maintenance Costs All Variable Costs 7 0 179 313 56 279 474 123 57

2 8 12 68 84 4 10


Analysis by network and vehicle categories. Aggregate ratios hide disparities among network categories. This is because variable fees are incurred on tolled roads, while a large share of the costs are incurred on other parts of the road network (particularly externalities). Table 17 presents the analysis by network and vehicle category, and reveals the following: ƷɆ

ƷɆ ƷɆ

ƷɆ

On tolled roads, the largest trucks cover their complete infrastructure costs. Cars only cover two-thirds. The small and medium-sized trucks, as well as the buses, cover 10%–20% of their infrastructure costs. A change in the charging system should ensure that the largest trucks do not get charged more on tolled roads, but the smaller trucks do. The actual use of state or regional and urban or rural road networks is not charged. A change in the charging system should enable charging for the use of these networks. Most vehicles, except cars, pay only a fraction of their infrastructure costs on rural and regional/ state road networks. This is particularly an issue for the largest trucks, which do not even cover the maintenance costs. In urban areas, vehicles cover the costs of maintenance and rehabilitation well, and even cars cover the infrastructure costs they generate. However, vehicles in urban areas generate far more externalities, potentially justifying higher fees.


Table 17: Cost Coverage Ratios, by Vehicle Category on Each Network

Vehicle Type

Fixed User Feesa ($ per veh-km)

Motorcycles National roads (tolled)

0.12

Variable User Fees ($ per veh-km)

Total User Fees ($ per veh-km)

0.02

0.13.

Economic Viewpoint (%) Variable Maintenance Costs

Financial Viewpoint (%)

Variable Social Costs

Complete Maintenance Costs

Maintenance and Rehabilitation Costs

All Allocated Infrastructure Costs

48

31

25

11

0


0.12

0.00

0.12

0

12

10

9

0

Rural roads

0.12

0.00

0.12

0

9

9

8

0


0.12

0.00

0.12

0

61

61

23

0

1.23

0.20

1.43

619

241

150

44

12

Cars National roads (tolled) State and regional roads

1.23

0.00

1.23

0

93

63

32

0

Rural roads

1.23

0.00

1.23

0

63

63

30

0


1.23

0.00

1.23

0

460

460

110

0

0.11

0.90

1.02

962

Small trucks National roads (tolled)

123

69

19

40


0.11

0.00

0.11

0

7

4

2

0

Rural roads

0.11

0.00

0.11

0

4

4

2

0


0.11

0.00

0.11

0

30

30

7

0

0.17

2.46

2.63

Medium trucks National roads (tolled)

119

91

42

17

51


0.17

0.00

0.17

0

3

2

1

0

Rural roads

0.17

0.00

0.17

0

2

2

1

0


0.17

0.00

0.17

0

12

12

3

0

0.40

7.42

7.82

652

381

181

Heavy trucks National roads (tolled)

67

148


0.40

0.00

0.40

0

11

5

3

0

Rural roads

0.40

0.00

0.40

0

7

7

3

0


0.40

0.00

0.40

0

41

41

10

0

0.66

14.49

15.15

Articulated trucks National roads (tolled)

1092

628

294

106

225


0.66

0.00

0.66

0

15

7

4

0

Rural roads

0.66

0.00

0.66

0

9

9

4

0


0.66

0.00

0.66

0

58

58

14

0

0.34

2.68

3.02

469

217

Buses National roads (tolled)

108

37

22


0.34

0.00

0.34

0

13

7

4

0

Rural roads

0.34

0.00

0.34

0

8

8

4

0


0.34

0.00

0.34

0

52

52

12

0

veh-km = vehicle-kilometer. a The fixed user fees refer to all transport-related user fees minus the tolls by user category and then divided by annual mileage. Source: Asian Development Bank estimates based on the road user cost model developed for this study.

3 Review the Ministry of Construction’s Tolled Road Program

Key Findings The Ministry of Construction’s road and bridge tolling programs generate in the aggregate large revenues, but these are concentrated in a small share of the network. MOC tolls 22,000 kilometers (km) of roads and about 170 bridges, which generated about $155 million in revenues in 2013. However, 80% of the tolled roads have very limited traffic and revenues, only generating 10% of total revenues. The auction road program seems to be a particularly inefficient revenue-collection mechanism. The tolling structure is very detailed and skewed, so that the tolls are too high for trucks and too low for cars. The MOC uses 24 vehicle categories, while most countries use 5 to 9. The rates for cars are well below the levels in other countries, but large truck tolls are comparable. This large gap between truck and car toll rates is unseen in other countries, and not justified by the costs associated with each type of vehicle. We provide two examples of more optimal toll-rate structures corresponding to minor and major road improvements. Current build–operate–transfer (BOT) road contracts cannot be implemented in a financially viable manner. The contracts include provisions for too systematic road widening, for too low toll rates, on roads having too little traffic. Very long BOT durations are uncommon by any standards, and only marginally improve the financial equilibrium of contracts. With higher toll rates, and more reasonable contract provisions, the BOT program could be used much more systematically to finance network improvements. However, we find little justification for tolling roads with less than 1,000 Annual Average Daily Traffic (AADT), implying that only about 4,500 km worth of roads in Myanmar should be tolled. The MOC’s auction toll model does not share the same flaws, but brings only moderate revenues to the MOC at a rather high 20% collection cost, and without applying a clear user-pays principle.

3.1

Overview

The MOC’s tolling program covers most of the trunk road network, and generates large revenues. The tolling program covers about 22,000 kilometers (km) of trunk roads under the MOC’s supervision, and generated about $155 million revenues in 2013. Based on available data, we estimate that the trunk road tolling program generates $125.5 million ($121.2 million collected under build–operate–transfer [BOT] schemes and $4.4 million under auction schemes). The bridge tolling program is estimated to generate $19.1 million ($2.8 million under an auction scheme and $16.3 million under a BOT scheme). The revenues associated with the Yangon-to-Mandalay expressway are about $10 million.

16

Review of the Ministry of Construction’s Tolled Road Program 17

Figure 9: Distribution of Traffic at Toll Gates (% of toll gates at various AADT levels) 3,000 2,500 2,000 1,500 1,000 500 0 0%

20%

40% Bridge gates

60%

80%

100%

Road gates

AADT = Annual Average Daily Traffic. Source: Asian Development Bank estimates based on data from the Government of the Union of Myanmar, Ministry of Construction.

However, revenues are highly concentrated on a small fraction of the road network with significant traffic. Only 20%–25% of toll gates register significant traffic, using a threshold of 1,000 Annual Average Daily Traffic (AADT), or 1,000 vehicles per day, not including motorcycles and bicycles, which do not pay tolls. Half of toll gates have traffic levels above 2,500 AADT, and 30% have even less than 100 AADT. Only 4% of bridge toll gates and 8% of road toll gates have a traffic level above 2,500 AADT (Figure 9). We received information on average traffic by vehicle category in 2013 at 213 toll gates located on roads (128 managed under auction schemes, and 85 managed under BOT schemes), and 170 toll gates located on bridges (154 auction and 16 BOT). The road BOT program covers 5,575 km, with an average length per toll gate of 66 km (41 miles). The auction road program covers 16,500 km, with an average length per toll gate of 130 km (80 miles). This corresponds to a tolled network of 22,000 km. Road tolls are set according to the distance, and bridge tolls according to the length of the bridge. Computations assume that each road toll gate covers the same distance of 66 km for BOT gates and 128 km for auction gates. Large bridges (above 1,000 feet) receive much higher tolls than medium-sized bridges (between 180–1,000 feet). These bridges were individually identified to produce accurate estimates of revenues.

Road Toll Revenue Analysis Most of the network is covered by auction road toll gates, which generate negligible revenues. The average revenue of an ‘auction’ road toll gate is $34,000 a year. The AADT is 215 (not including motorcycles). Almost all (96%) ‘auction’ road toll gates have less than 1,000 AADT, and 65% have revenues below $100,000 a year. The 10 ‘auction’ toll gates with the most traffic generate annual revenues of $175,000 to $500,000 a year. Auction gates account for 60% of all road gates (Table 18).


Table 18: Analysis of Road Toll Gate Data, as of FY2013 Item

Auction

BOT

Total

Number of toll gates considered

128

85

213

Revenues estimates ($ million per year)

8.4

121.2

129.6

20% of gates with highest revenues generate (% of revenues)

…

…

84%

50% of gates with lowest revenues generate (% of revenues)

…

…

1.5%

94% (83)

1% (1)

39% (84)

3.8

0.1

3.9

96% (123)

42% (36)

75% (159)

6.8

14.0

20.8

Toll gates generating less than $100,000 annually, % (number) Revenues generated ($ million per year) Toll gates with traffic less than 1,000 AADT, % (number) Revenues generated ($ million per year)

… = data not available, AADT = Annual Average Daily Traffic, BOT = build–operate–transfer. Source: Asian Development Bank estimates based on data from the Government of the Union of Myanmar, Ministry of Construction.

In contrast, BOT road toll gates usually generate higher revenues. The average revenue of a BOT road toll gate is $1.4 million a year, and the AADT is 1,600. Only 1% of BOT road toll gates generate less than $100,000 a year. Still, 42% of BOT road toll gates have an AADT of less than 1,000. BOT gates account for 40% of all road gates. Thus, a large share of toll gates generate minimal revenues. Of the total tolled network, 75% have less than 1,000 AADT. While the top 10% of the network generates 77% of revenues, the bottom 50% generates only 2% (Figure 10).

Figure 10: Toll Road Revenues, by Network Segment 140 120

$ million

100 The next 30% of the network generates $10 million (8% of revenues)

80 60

The top 50% of the network generates $2.5 million (2% of revenues)

The next 10% of the network generates $18 million (13% of revenues)

40

The bottom 10% of the network generates $100 million (77% of revenues)

20 0 0

5,000

10,000

15,000

20,000

km km = kilometer. Source: Asian Development Bank estimates based on data from the Government of the Union of Myanmar, Ministry of Construction

Review of the Ministry of Construction’s Tolled Road Program 19

Bridge Toll Revenue Analysis Auction bridge gates have generally have little traffic, but their individual revenues are higher than those for road gates. The average revenue of an auction bridge toll gate is $106,000 and the average AADT is 750. Only 20% of gates have traffic over 1,000 AADT with revenues above $100,000. Few have very high traffic (up to 16,000 AADT) and only four bridges generate annual revenues above $1 million, while the highestrevenue bridge gate generates only $2.6 million annually. All but one bridge with a large span are auction bridges. Auction gates account for 90% of all bridge gates (Table 19). A few medium-sized bridges are managed under build–operate–transfer agreements. The average revenue of a BOT bridge gate is $170,000. The average AADT is 2,000. Most BOT gates have traffic between 1,800 and 2,500 AADT, and annual revenues between $200,000–250,000. BOT gates account for 10% of all bridge gates. Altogether, the distribution of bridge toll revenues appears to be as skewed as the distribution of road toll revenues. Large bridge gates contribute even more disproportionately to overall revenues: the seven largest 50%.

Table 19: Analysis of Bridge Toll Gate Data Item

Auction

BOT

Total

Number of toll gates considered

154

16

170

Revenues estimates ($ million per year)

16.3

2.7

19.1

…

…

85%

20% of gates with highest revenues generate… % of revenues 50% of gates with lowest revenues generate… % of revenues Toll gates generating less than $100,000 annually in % (number) Revenues associated ($ million per year) Toll gates with traffic less than 1,000 AADT in % (number) Revenues associated ($ million per year)

…

…

2%

82% (126)

25% (4)

76% (130)

2.2

0.05

2.2

80% (123)

25% (4)

75% (127)

3.5

0.05

2.5

… = data not available, AADT = Annual Average Daily Traffic. Source: Asian Development Bank estimates based on data from the Government of the Union of Myanmar, Ministry of Construction.

Tolling Structure The MOC’s toll rate structure is very detailed, affects the largest trucks more than other vehicles, and lacks apparent coherence (Table 20). The toll rate structure includes 24 categories. There are 16 categories only for trucks only that depend on the number of wheels; the number of the axles; and the truck’s length, function, and even brand. Categories for buses differentiate by seating capacity. The ratio of the toll rate for the largest trucks (six-axle) to the toll rate for a standard passenger car is 18:1 on medium-sized bridges (180–1,000 feet), 33:1 on auction roads, and up to 70:1 on BOT roads and on bridg