August 27, 2007 / 9:23 AM / 12 years ago

Myanmar fuel rises suggest junta budget crunch

BANGKOK (Reuters) - The shock fuel price rises that sparked a rare series of protests in Myanmar suggest the ruling junta is facing a short-term budget crunch despite the promise of long-term riches from huge gas reserves, analysts said on Monday.

As ever in the former Burma, any number of conspiracy theories have cropped up to explain this month’s fivefold increase in the price of compressed natural gas (CNG) and a doubling of diesel prices.

The rises brought Yangon’s bus networks to a halt and highlighted the soaring cost — and declining standard — of living in a country the World Bank saw as one of Asia’s brightest prospects in the 1950s and now one of its poorest.

According to some theories, the army was inciting public anger deliberately to justify a crackdown, or manufacturing a crisis to divert attention from a constitution-drafting National Convention expected to wind up next month.

However, it is far more likely the generals were simply struggling to pay for domestic diesel subsidies despite rising revenue from sales of natural gas, analysts say.

The irony of an energy-rich nation — Myanmar has at least 90 trillion cubic feet (tcf) of gas reserves, the world’s 10th largest, and 3.2 billion barrels of recoverable crude — being unable to supply its people with cheap fuel was not lost on the demonstrators.

Their rare shows of dissent started only days after it emerged the junta had decided to sell gas from the A1 and A3 blocks of its huge offshore Shwe field through a pipeline to China, rather than India.

ANCIENT REFINERIES

According to industry estimates, the two blocks could provide Myanmar with an annual $2 billion (992,460 pounds) or more for the next 40 years, enough to make Western sanctions on the generals who have been in charge for the last 45 years irrelevant.

But negotiations on the details of a deal are believed to be still under way and so no gas — and therefore no cash — is likely to flow until at least 2009, leaving the country reliant for now on sales to Thailand for a big chunk of export earnings.

Gas sales to Thailand rose to $2.2 billion in 2006 from $1.1 billion the previous year and accounted for a whopping 43 percent of overseas revenue — the rest being mainly for gems, timber, copper and agricultural goods.

But even as these revenues have risen, the country of 53 million people has had to import nearly all its diesel because of a domestic refining sector crippled by 50 years of non-investment.

With crude around $70 a barrel, and no means of turning their own natural gas into something usable, the generals are struggling to make the books balance.

“We’re talking about immediately post-World War Two refineries that can only handle good quality crude with a fairly low sulphur content,” Sean Turnell of Sydney’s Macquarie University said.

“Undoubtedly they’ve been getting more revenue from gas sales, but if they don’t have the capacity to refine their gas into usable fuel, or their oil into diesel, they’re going to be spending a lot more on bringing it in,” Turnell said.

At the same time, on the flip side of the junta’s revenue equation, there have been massive public spending splurges, not least on a new administrative capital in jungle-clad hills 400 km (250 miles) north of Yangon.

Shortly after being shipped off to the half-finished city, disgruntled civil servants — big players in a nationwide anti-junta uprising in 1988 — received a fivefold salary increase, topped only by a tenfold increase for the army.

Besides getting the central bank to print money — helping to push inflation over 50 percent, according to independent analysts in Yangon — the generals had little option but to cut their costs.

“Rising imports of diesel, gasoline and gas products at escalating prices cannot be paid for from existing gas revenues,” Myanmar expert Alfred Oehler wrote in The Irrawaddy, a Myanmar magazine based in northern Thailand.

“Nor can an already weak state budget, depleted by projects such as a new capital, absorb such rising costs. The only solution is to slash the subsidies and raise fuel prices,” he concluded.

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