Mitigating the Risks of Local Currency Depreciation Against Us Dollars for Petroleum Importing Companiesin Myanmar

Independent study on

Mitigating the Risks of Local Currency Depreciation against US Dollars for Petroleum Importing Companiesin Myanmar

Submitted by

Dr. Myint Myat Maung Maung

ID: 1501116013039

UMFCCI Batch-6

Introduction

1. Background of Petroleum
2. Current Situation
3. Statement of problem
4. Objectives of the study
5. Significance of the study
6. Expected benefits of the study

Introduction

1. Background of Petroleum

        Especially with the western countries, Myanmar has a history of not having good relations regarding business. The US did not import anything from Myanmar. Sanctions on Myanmar, restricting the import of particular products are imposed by Australia and the European Union. Myanmar’s exports fell drastically during 2008-09, the time of global economic crisis. However, Myanmar shares healthy trade relations with its neighboring countries, including Thailand, India and China. Myanmar is also a member of the ASEAN, WTO and BIMSTEC. One of the main hindrances to international trade is the poor infrastructure of Myanmar.

Burma has a wealth of priceless land containing precious stones and gems especially jade stones. The main route of trade is across the Thai border which is also being used to export many illegal drugs, stones and gems through the Ayeyarwaddy River. However, due to the infamous working conditions in the mines, international companies refuse to import these stones. Myanmar has a large trade deficit that has also crippled its economic growth. Trade deficit is due to large import quantities as opposed to exports. Petroleum is one of the major importing commodities of the country. In 2007, the country imported 18,250 bbl/day and exported only 2,200 bbl/day of oil. The total overall imports rose to $3.555 billion in 2009, from $3.388 billion in 2008 (excluding the import of smuggled products). The total overall exports fell to $6.504 billion in 2009, from $6.677 billion in 2008 (excluding export of smuggled products). (Economy Watch Content, March 17, 2010)

Nowadays, the sanctions are lifted and the government invites all the business sectors to develop and the foreign companies to come and do business in the country, there is been a lot of new companies and a lot of incoming companies from other countries.

Myanmar which is also known as Burma is the second largest country in Southeast Asia in size but was underdeveloped because of instability in politics. Myanmar is now governed by the public nominated government led by DawAung San Su Kyi, Daughter of BogyokeAung San and the government is planning towards growth and development of the country. Myanmar is a nation which is full of natural resources. More than 60% of the land in the country is under cultivation. There are mines of ruby and other precious stones, timber forests and, fishery lines. One of the most promising industries for earning foreign exchange is Tourism.

Since Myanmar is a developing country, a lot of commodities are being imported and there is also a lot of government spending for upgrading infrastructure. Construction materials, telecommunication related materials, energy fuels, etc are being imported. Importing cars is too one of the booming markets in Myanmar. As the country is developing, the government also eases up the processes of importing cars. Used Japanese cars are the most popular cars in Myanmar. People have been importing used Japanese cars mainly. More than 90 percentages of imported cars are Japanese cars as per Myanmar’s traffic authority. Nissan, Honda, Mitsubishi, Isuzu are also most popular Japanese car brands. But Toyota is also the number one popular imported Japanese car brand in Myanmar like many other countries.

Lately the demand in Myanmar regarding used cars is getting higher and higher. This results in increased volume of the imported fuel for running these vehicles. This is good news for both petroleum importers and dealers and exporters of petroleum. Both countries will have profits from the business. The increasing volume of importing cars eases the transportation of the people of Myanmar. But there are also increased road traffics and air pollutions. The Myanmar government is trying to solve these cases. Improving the fuel used for these cars is also one of the cases. (JapaneseCarTrade.com, 2011 – 2012)

1. Current Situation

Petroleum is the major fuel in every country in the world, especially for automobiles. Myanmar too is one of the petroleum dependent countries in the world. Although some developed countries are already using solar energy and electrical energy for vehicles, major developing countries are still using gasoline as a fuel for vehicles. The gasoline which has different octane ratings varies by country. 95 RON is the standard for regular unleaded gasoline in Finland, Sweden, and Norwayand as a more expensive option 98 RON is also available. In the United Kingdoms, commonly available gasoline is 95 RON, premium unleaded gasoline is 97 RON, and super unleaded is 97–98 RON. Nowadays, petrol with the octane rating of 102 RON is also produced by big manufacturing companies like Shell and BP to be used for high-performance engines and Tesco started to supply super unleaded gasoline rated at 99 RON in 2006. In the US, octane ratings in unleaded petroleum varies between 85 and 91–92 RON for regular, 94–95 RON for mid-grade, up to 95–99 RON for premium. (Wikipedia, 21 February, 2017)

There are four major types of petroleum sold at gas stations in Myanmar. They are Octane 92, Octane 95, Diesel and Premium Diesel. They are sold in Myanmar Kyat per Litre. The price per Litre varies between 700 Kyats and 900 Kyats depending on many factors.According to the Ministry of Energy, the number of petroleum refilling stations owned by private companies reached around 1,228 in the country in 2016. The Ministry of Energy also added that a total of 261 out of 273 government owned fuel stations were privatized over the past five years. Fuel stations were owned by the government related associations before 2010. Still, the natural gas is distributed solely by the government. Since the private companies have been granted for importing petrol and diesel, the total number reached 406 and continues to increase to match up with the local demand and to export to China through border. (MBT, 16 March, 2016, Vol 4, Issue 11)